The Region and the World: the Case of Nizhnii Novgorod

Eidgenössische “Regionalization of Russian Foreign and Security Policy” Technische Hochschule Zürich Project organized by The Russian Study Group at the Center for Security Studies and Conflict Research Andreas Wenger, Jeronim Perovic,´ Andrei Makarychev, Oleg Alexandrov

WORKING PAPER NO.6 MAY 2001

The Region and the World: The Case of Nizhnii Novgorod

DESIGN : SUSANA PERROTTET RIOS

This paper gives a thorough account of the factors that foster or inhibit Nizhnii By Andrei S. Makarychev Novgorod’s efforts to become a player in the national and international arenas. The author of this study sees opportunities and hurdles for the region’s integration into international economic (but also political and social) structures. This process, which started in the early 1990s, was much more lengthy and time consuming than was initially expected. There have been objective reasons for this development (the general crisis of the Russian economy, lack of a globally oriented sector of the regional market) as well as subjective ones (foreign policy misperceptions of local elites, administrative inertia and lack of well-trained managers). The author argues that the region’s economic and financial projects might in the future realistically be integrated into a wider international geopolitical and geoeconomic framework. Thanks to a relatively liberal leadership, experiences in the field of international cooperation and the strong presence of foreign economic actors in the region, business professionals and policy-makers from Nizhnii Novgorod are gradually adapting to the basic norms and rules of the international business and political community and understand the necessity to improve the quality standards of domestic production.

Contact: Center for Security Studies and Conflict Research ETH Zentrum / SEI CH-8092 Zürich Switzerland

Andreas Wenger, head of project [email protected] Jeronim Perovic´ , project coordinator [email protected] Oleg Alexandrov [email protected]; [email protected] Andrei Makarychev [email protected]; [email protected]

Order of copies: Center for Security Studies and Conflict Research ETH Zentrum / SEI CH-8092 Zürich Switzerland [email protected]

Papers available in full-text format at: http://www.fsk.ethz.ch/

Layout by Marco Zanoli The Region and the World: The Case of Nizhnii Novgorod contents

Foreword 5

Introduction 7

By Andrei S. Makarychev 1. Regional security and international integration 11

1.1. Economic security 11

1.2. Ecological security 12

1.3. Military and technological security 13

1.4. Military conversion projects 15

1.5 Information and security 16

1.6 Law enforcement 17

2. Agents of globalization in the region and resources for internationalization 19

2.1. Regional administration 19

2.2. Municipal authorities 26

2.3. Individual enterprises 30 Working Paper No. 6 2.4. Foreign actors and their projects 32 3. Relations with the federal center 45 3.1. Federal institutions in the region 45 3.2. NNO as a part of the Volga Federal District 49

4. Problems of international cooperation at the regional level 55

5. Implications and scenarios 65

Foreword

This case study explores the situation of Nizhnii Novgorod Oblast in the national and international context. Nizhnii Novgorod is an important region for several reasons. First of all, it plays a significant political and economic role both in the Volga Federal District (with Nizhnii Novgorod as its capital) and in the “Greater Volga” interregional economic association. It hosts industries with strong export potential such as oil and gas refineries, chemical plants, metallurgy and car building. Second, prominent personalities such as former governor Boris Nemtsov and Sergei Kirienko (now head of the Volga Federal District) are closely associated with the region and have contributed to its image as one of the most reform-oriented and liberal regions of Russia.

Although the territory was a closed area until 1990, Nizhnii Novgorod is clearly one of the regions that are interested more than others in international cooperation, not only in the economic sphere, but also in terms of “global networking” among scholars and the development of international cultural contacts. Although there are obstacles to Nizhnii Novgorod’s international integration, Andrei Makarychev, Professor of International Relations at Nizhnii Novgorod Linguistic University and a member of the Russian Study Group at the Center for Security Studies and Conflict Research at the Swiss Federal Institute of Techno- logy (ETH) Zurich, sees good chances that the region’s economic and financial projects might be integrated into a wider international geopolitical and geoeconomic framework in the future.

Makarychev analyzes the various strategies pursued by different economic actors in Nizhnii Novgorod trying to adjust to global practices, standards and rules. Some of these actors are looking to expand the market for their products, while others work hard to find international investors. Yet protectionist attitudes 6 Andrei S. Makarychev

are also prevalent in those sectors that fear competition should the market be opened. This paper also serves as an example of how land-locked regions such as Nizhnii Novgorod deal with new security challenges, whether they be illegal migration, drug trafficking, smuggling, or illegal business practices. The author shows that the integration of regions into the web of international cooperation is not an easy task. The international roles of the newly created federal districts are also ill defined. All this suggests that subnational units in Russia are still in search of their international identities. The paper is the sixth in a series of working papers written in the context of the project “Regionalization of Russian Foreign and Security Policy: Interaction between Regional Processes and the Interest of the Central State”, funded by the Swiss Federal Institute of Technology (ETH) Zurich. All the studies in this series are available in full text at http://www.ethz.ch. Introduction*

Zurich, April 2001 Studying the case of Nizhnii Novgorod Oblast (NNO) as a regional actor in the wider international context is worthwhile for various reasons. First of all, this Prof. Dr. Andreas Wenger region was a closed area up until 1990 due to the military importance of its industry in Soviet times. Throughout the 1990s, Russia experienced a period of grad- Deputy director of the Center for Security Studies and Conflict Research ual adjustment of the regional elites and institutions to the international environment. NNO began to reclaim its historical reputation as the commercial “pocket of Russia”.

Second, during the 1990s, the region experienced two different patterns of governance: the first, explicitly liberal and innovative, was associated with the first post-Soviet governor, Boris Nemtsov, while the second governor, Ivan Skliarov, was much more conservative and traditional. Under Nemtsov, NNO became a laboratory of economic reform and worked towards privatization and economic reforms in close cooperation with the World Bank, the International Finance Corporation, the British Know-How Fund, the US Peace Corps, the Inter- national Executive Service Corps, the Citizens Democracy Corps, the Eurasia Foundation, and numerous Western non-governmental organizations (NGOs). The investigation of the transition from a closed region to one of the regional pio- neers in market reforms, and of the “post-Nemtsov” era, enables us to trace the evolution of NNO from the viewpoint of both domestic and foreign policies.

* The Author is thankful to Open Society Institute International Policy Fellowship Program (2000-2001) and IREX/ECA Alumni Grant Program for supporting this research. Special thanks to Dr. Andreas Wenger and Jeronim Perovic for their thoughtful comments and recommendations, and to Marco Zanoli for layouting the publication. 8 Andrei S. Makarychev The Region and the World 9

Third, a number of politicians from Nizhnii Novgorod were promoted to the low-income groups has been significantly increased. It is also reported that in federal government from 1997 onwards. Sergei Kirienko (who was prime minis- NNO, official statistics and documents are difficult to obtain.3 ter in 1998) and Boris Nemtsov (leader of the Union of the Right Forces party What is missing in the reports mentioned above is an account of the domes- which finished fourth in the 1999 parliamentary election) are the two most promi- tic mechanisms fostering or inhibiting the region’s adaptation to the global arena, nent of these. an analysis of the main actors and institutions maintaining the region’s foreign Fourth, in May 2000, Nizhnii Novgorod was selected by President Vladimir relations, and an assessment of the potential of each of these. My attempt in this Putin as the center of the newly created Volga Federal District (VFD), one of seven paper is to further the expertise on the international participation of NNO to federal districts in the country. This distinguished NNO’s political credentials include these new issues, to discuss the basic problems existing in this field, and from those of the neighboring regions. As the “capital” of the VFD, Nizhnii Nov- to outline some perspectives for the near future. Apart from studying official gorod had a new opportunity to become one of the locomotives of Russia’s tran- documents, statistics, and regional media, I have also conducted a series of sur- sition. New models of governance are being explored, and solutions to prevent veys, which provide a sense of the attitudes and perceptions of both regional and and respond to crises are being looked for. international experts regarding the issues under consideration.4 Fifth, unfortunately not much has been written in the West about this region’s international relations. The Institute for Advanced Studies in Vienna placed NNO third in 1999 amongst the regions in Russia in terms of political risk for investors, with only Moscow and St Petersburg scoring better ratings. NNO received the following marks (out of 10): 6 for “continuity in the preference of regional voters”, 6 for “fragmentation of the regional political spectrum”, 6 for “organization and power of the radical political parties”, 5 for “presence of strong interest groups”, 3 for “legislative stability and proper implementation of treaties”, 2 for “state ownership in the economy”, 5 for “support of foreign trade”, 4 for “regional tax policy”, and 5 for “crime rate”.1

Kathryn Stoner-Weiss, one of the few Western scholars studying the region, recognized that many Western institutions were able to achieve greater success in NNO than in other provinces of Russia. At the same time, however, she could not find any convincing sociological arguments to prove the hypothesis that the people of NNO are greater supporters of radical economic reforms, or embedded in a more visible “democratic culture” than the populations of other regions. What is more, she found that the electoral activity of the NNO population – one of the key elements of a democratic culture – was lower in comparison to other central Russian regions.2

The World Bank study of 1999 identifies characteristics of Nizhnii Novgorod such as having one of the highest price rates in the Volga region, and having a relatively low quota of small enterprises per thousand residents. Compared with the other regions of Russia, NNO and Tatarstan are the main recipients of foreign investment per capita, and also show the highest regional output which is achieved through joint ventures with foreign enterprises. NNO is one of those Volga regions with the highest real social wage, where the purchasing power of 3 De Melo, Martha, and Gur Ofer. The Russian City in Transition: The First Six Years in 10 Volga Capitals. Washington, D.C.: The World Bank Report, August 1999. 1 Mogel, Nicola. The Political Risk in Russian Regions. Vienna: Institute for Advanced Studies, 4 Twenty-five foreign experts (all with personal professional experience in Nizhnii Novgorod) Transition Economics Series no. 3, February 1999. and twenty-five regional experts were asked to fill out questionnaires measuring their assess- 2 Stoner-Weiss, Kathryn. Local Heroes. The Political Economy of Russian Regional Governance. ments of specific areas related to the region’s foreign communications. Experts came from the Princeton: Princeton University Press, 1997. public service, universities, media, and NGOs. Regional security chapter 1 and international integration

To understand the challenges of the international integration of NNO, one should begin by looking at the whole array of problems associated with security. As of now, no comprehensive concept of regional security exists in NNO. Security analysis at the regional level is not applied widely in Russia at all yet. There is, however, a growing understanding that security should be tackled regionally. For the purposes of our paper, we should also bear in mind that many security problems involve clear international dimensions, since they are closely related to processes evolving beyond Russia’s borders. There is a wide range of security issues that could be approached and solved by the region’s authorities:

1.1. Economic security To understand the basic economic difficulties of the region, it should be remem- bered that during the last decade, NNO moved from being a “donor” region to being a “recipient” region: in the fall of 2000, an official statement declared that the regional budget deficit amounted to RUR500 million (ca. US$18 million). The worsening of the region’s financial performance gave local experts good reason to speak of financial bankruptcy under Skliarov’s governance.5 The NNO Regional Assembly appealed to Putin in the fall of 2000, asking him for financial support. Major social indicators (such as the consumption level, the average salary, and per capita incomes) are 30-50% lower than in the rest of Russia. Pen- sioners make up 30% of the NNO population.

5 Birzha, no. 45, November 16, 2000, p. 9. 12 Andrei S. Makarychev The Region and the World 13

Yet even under these rather unfavorable conditions, major economic proj- national links, an ecological certificate is indispensable in order to participate in ects that are being put into practice in NNO remain in close touch with the larger major international projects. geoeconomic and geofinancial processes. On one hand, world market develop- Greenpeace activists regularly organize information campaigns in Nizhnii ments have a decisive impact on the regional industry. Experts predict, for exam- Novgorod to attract public attention to the effects of oil spills caused by numer- ple, that the alliance between FIAT and General Motors might harm the ous pipeline ruptures, to air pollution, and to other environmental problems. The “Nizhegorod Motors” project, since the US company is basically oriented towards International Ecological Union chaired by Askhat Kaiumov from Nizhnii Nov- cooperating with the VAZ automobile construction holding in Samara Oblast, gorod together with the “Dront” center has campaigned to prevent a project and would hardly agree to sponsor a potential competitor in NNO. “NORSI”, the geared towards reprocessing nuclear waste from abroad in Russia. According to major oil refinery of NNO, was badly affected by the increase in world oil prices, Kaiumov, these plans would severely damage the environment in many Russian since it completely depends upon supplies from Russian oil extracting companies. regions, including the environment of Nizhnii Novgorod. The Regional Legisla- If ever “NORSI” would choose to reorient itself towards foreign markets, it would tive Assembly debated the new draft of the federal law On Preserving the Envi- have to drastically cut its production. ronment during the year 2000, focusing on the provision that would allow import International events have also had some influence over the region’s foreign of radioactive materials to Russia for reprocessing. Estimates show that, based on economic perspectives. In the aftermath of the end of the NATO air strikes against this draft, NNO might gain more than 5000 jobs in the city of Nizhnii Novgorod Yugoslavia, for example, NNO Governor Ivan Skliarov signed a decree stipulat- (CNN), Sarov, and Gorodets. Local ecologists, however, have rejected this idea, ing the creation of a task force with the participation of NNO enterprises in and have promised to organize a regional referendum on this controversial rebuilding the destroyed oil refineries in Novi Sad and Pancevo. Ivan Skliarov issue.7 also raised this issue in his talks with the head of Russia’s delegation, Dmitry International cooperation is important for solving ecological problems. Likhachov, at the European Union in Brussels.6 Semenov Forestry became the center for seed stock accumulation for all of Russia, On the other hand, NNO-based projects might themselves have an impact to be used to restore the pine-needle forests in the southern regions of Russia. This on the nation as a whole. Kakha Bendukidze, for example, a Russian tycoon who was one of results of the implementation of the international project “Nizhnii became a major shareholder and investor in the “Red Sormovo” shipyards, Novgorod Forests”, funded by the governments of Finland and of the German pledged to create a technological complex of enterprises located in NNO, St state of North Rhine-Westphalia.8 Petersburg, Yekaterinburg, and Astrakhan’, strategically aimed at providing infrastructure for exploiting and processing oil resources in the Caspian Sea. The implementation of this project could provide important competitive advantages 1.3. Military and technological security to big Russian businesses in this area. NNO is an important producer of military equipment, which is why, during Soviet times, it was classified as a closed area. Foreign tourists were only officially 1.2. Ecological security allowed to enter the city of Nizhnii Novgorod for the first time in June 1990. Ever since the region opened to foreigners, the regional Federal Security Service has Experts are unanimous in ranking environmental problems among the highest been very watchful in order to prevent any foreign intelligence from obtaining priorities of regional politics. Ecological problems demonstrate an increasing classified information concerning military industries. interdependence in the inter-regional relations within Russia as well as in rela- There are numerous research institutions and producers of military equip- tions to neighboring countries. The NNO region has a system of ecological mon- ment in NNO. Their international collaboration is hindered by several obstacles, itoring to identify the most critical problems. The Nizhnii Novgorod Center for including the lack of start-up capital, “brain drain”, poor marketing, ignorance of Ecological Security evaluates the environmental situation in the region in accor- international technical standards and safety norms, and insufficient awareness dance with three major parameters – pollution, technogenic catastrophes, and the about consumer regulations and registration norms in the West. Direct commer- sanitary-epidemic situation in the region. The Nizhnii Novgorod Center for Stan- cial contacts between NNO enterprises and their foreign partners are developed dardization & Metrology was the first institution in Russia to establish a regional system of voluntary ecological certification. For most companies with inter-

7 http://www.apn.ru/regions/2000/06/15/20000615134806.htm 6 http://www.sklyarov.ru/library/5august.htm 8 http://www.infonet.nnov.ru, September 14, 2000. 14 Andrei S. Makarychev The Region and the World 15

mostly with non-Western countries. The “Sokol” aviation plant, for example, Defense Ministry, for example, which failed to provide funds on time for upgrad- modifies MiG fighter planes for Bangladesh. ing the nuclear submarine Nizhnii Novgorod, of which the NNO administration was a sponsor. The NNO administration harshly criticized the decision of the NNO has a rather well developed technological infrastructure. Many Ministry of Defense to transfer the High Military Air Force School from Nizhnii regional experts assume, however, that what is missing is a lack of state funding Novgorod to Yaroslavl’ in 1999.13 The mayor of the CNN, Yurii Lebedev, decided for innovative scientific research. They call for a concentration of financial and to block construction of a building for military officers in 2000 until the Ministry material resources in top-priority areas of applied science and industry. Ben- of Defense had paid all its debts to the city.14 The second type of conflict is dukidze, who has financial interests in NNO, assumes that the region’s military between military industries and federal authorities: Kvasha, for example, claimed enterprises would be unable to build submarines due to technical backwardness that it might take 9-12 months for the government to allow the participation of and lack of skilled personnel. individual enterprises in contract research with foreign countries. This would The situation in enterprises that form the core of the regional military-indus- make profitable international cooperation unfeasible.15 The third kind of conflict trial complex – Lazurit and Krasnoe Sormovo – is quite telling. These enterprises is between military enterprises located in different regions: Lazurit, for example, produce diverse defense equipment, including the rescue submarines “Bester” engages in severe competition with the Rubin military plant of St Petersburg. and “Priz”, the need for which was highlighted in the aftermath of the Kursk submarine accident. Due to lack of proper funds, their equipment has not been upgraded since the mid-1980s, and is not being used properly today.9 According 1.4. Military conversion projects to Lazurit director Nikolai Kvasha, the current technical capabilities of the com- Military conversion projects are very different and produce mixed results. The pany are rather meager: it would take about 15 years to build a new atomic sub- Sarov nuclear center, for example, has managed to diversify its civilian output by marine, and 20-22 years to produce 5-7 of them, provided that federal funding processing diamonds and producing wine.16 The Sarov-based All-Russian Scien- were available.10 Other examples are more promising. OKBM, a major producer tific Institute for Experimental Physics was targeted by the US government as a of nuclear reactors, was able, according to its director Aleksandr Kiriushin, to key investment site in order to stem a possible drain of nuclear scientists to rogue secure sizeable funds due to its contracts with India, China, and Iran, and to cre- foreign countries, and thus to prevent nuclear proliferation.17 ate thousands of new jobs in Nizhnii Novgorod.11 International military observers have been inspecting the reconstruction of Regional and local institutions share some responsibilities with the federal the military base in Surovatikha near Nizhnii Novgorod, where more than 50 SS- center in the domain of military and technological security. The GAZ automobile 18 ballistic missiles are destroyed each year.18 The bulk of foreign assistance to construction plant, for example, which is patron to two military ships located in conversion projects, however, is directed mainly at training programs for former Sevastopol’ and Novorossiisk, provides training facilities and courses for future military officers, and can be divided into two groups: a) company-based retrain- draftees who are willing to serve in the Black Sea. It is significant that it was the ing as part of larger projects, and b) retraining programs provided by experts administration of the CNN that took care of relatives of the Kursk crew after the from the West to teach general business skills. A three-volume textbook on con- submarine sank in August 2000 in the Barents Sea.12 Even the districts of the CNN version was published, and a series of workshops were convened with the assis- have a say in security issues. In July 2000, the administration of the Sovetskii city tance of Paris-8 University.19 According to a study by Kseniia Gonchar, the district signed an agreement on cooperation with the Submarine Division of the Black Sea Fleet Headquarters, providing the sailors with medicine, food, technical equipment, and literature.

In the fields related to military security, we find different kinds of interest 13 Krasnaia Zvezda, no. 121 (22903), June 1, 1999. conflicts. The first is between regional, municipal and federal authorities: NNO 14 http://www.regions.ru/news/188143.html Governor Ivan Skliarov expressed his dissatisfaction with the inaction of the 15 Gorod i gorozhane, no. 39, September 21, 2000. 16 Popova, Nadezhda. “Tserkovnoe vino ot uchenykh-iadershchikov” (Church Wine from Nuclear Scientists). Nezavisimaia gazeta, October 4, 2000, p. 4. 9 http://www.regions.ru/news/296634.html 17 Zisk, Kimberly Marten. “The Political Costs of Western Investment in Russian Spin-off Com- 10 Kvasha, Nikolai. “My delaem luchshuiu podvodnuiu tekhniku mira” (We Produce the Best panies.” Program on New Approaches to Russian Security Policy Memo Series, Memo no. 49, Submarine Equipment in the World). Birzha, no. 42, October 26, 2000, pp. 9-10. November 1998, p. 2. 11 Kiriushin, Aleksandr. “Atomnyi lokomotiv” (Nuclear Locomotive). Birzha, no. 50, December 18 http://www.regions.ru/news/292442.html 14, 2000, p.6. 19 Davydova, Marina. “Global’naia filosofiia local’nykh proektov” (Global Philosophy of Local 12 http://www.regions.ru/news/index.html Projects). Nizhegorodskii predprinimatel’, no. 1, 1999. 16 Andrei S. Makarychev The Region and the World 17

problem is that “Russian industry managers have grown suspicious of generic first city in Russia to conduct an internal audit of its software, establish software courses in market economy, which they find dull and useless for their profes- standards, and pledge to use only licensed computer programs. There is, how- sional advancement”.20 ever, a deficit of skilled experts in identifying high-tech crime. This adds urgency to the introduction of new courses on the technical and legal aspects of informa- Military security issues involve interaction between official authorities and tion protection at the Law Faculty of Nizhnii Novgorod State University.25 NGOs. Some of the NGOs, such as Edinenie, created in 1997, cooperate closely with the local government to assist war veterans.21 Others, like the Nizhnii Nov- gorod Human Rights Association, severely criticize the NNO administration for 1.6 Law enforcement neglecting the creation of an alternative military service, which is constitutionally feasible, yet lacks sufficient legal foundations. NNO human rights activists argue A number of law-enforcement issues are related to labor market development. that there is enough leeway to secure the right of conscripts to non-military serv- These include the registration of non-residents, foreign visitors, and migrants. ice on the regional level, yet their voices are not being heard so far.22 The governor has the authority to issue regulations in these areas which are put into practice by the NNO Chief Board on Interior Affairs, including establishing administrative responsibility for breaking the registration rules, as well as reliev- 1.5 Information and security ing certain categories of foreign citizens of mandatory registration fees. The NNO Migration Service is also subordinate to both the executive and the legislative The NNO Chief Board on Interior Affairs established a special unit in 1999 to organs of the region. identify and prevent high-tech crime (for example through computer technology and credit card fraud.23). It addressed the Regional Legislative Assembly with a Although a relatively small group of foreign citizens are long-term residents request to allocate US$191’000 for new equipment. In August 2000, in the after- in the region (less than 200 at the end of 1999), the NNO Chief Board on Interior math of the terrorist attack in a Moscow residential area, the Chief of the NNO’s Affairs is concerned with the influx of temporary residents. A number of tempo- Board of Interior Affairs appealed to all Internet users to report any relevant indi- rary residents have violated registration statutes. In 1999, in response to these cations of possible terrorist threats or storage of explosives. In fact, this was the concerns, the NNO Legislative Assembly increased the severity of fines and first time the authorities recognized the importance of electronically distributed administrative sanctions against foreign citizens who flaunt regional laws. Depor- information in preventing a deadly incident. A local branch of FAPSI (the Federal tation as a measure against insubordinate foreigners is also being considered. Agency for Governmental Communication & Information) was established in Such a procedure stipulates the establishment of a regional fund to cover depor- Nizhnii Novgorod in the fall of 2000. tation expenditures. This fund would be financed by regional enterprises employ- ing foreigners.26 The issue of computer-related crime and its prevention was first raised in 2000. Sergei Abyshev, the vice mayor of Nizhnii Novgorod, disclosed the fact that The NNO Department of Foreign Economic Contacts announced its new, 98% of all local computer users work with unlicensed software. This has stricter policy in regard to foreign employees coming from North Korea, Vietnam, extremely negative effects in terms of international cooperation (as it prevents the and other Asian countries in February 2000. Requirements relating to medical emergence of full-fledged market relations) and the local labor market (computer insurance, residence registration, and sanitary inspection are to be significantly engineers have to emigrate from Russia24). tightened. Based on the understanding of this problem among local authorities, Another institution in charge of control over foreigners is the Nizhnii Nov- Microsoft’s Moscow office has started communicating with local companies and gorod Regional Board of the Federal Tax Police Service. According to official data, offering workshops and seminars aimed at distributing legal information con- only one third of the 600 foreign citizens who entered NNO in 1999 obtained job cerning illicit software usage. Microsoft officers praised Nizhnii Novgorod as the permissions. More than 3000 foreign citizens were qualified as tax evaders. In 1999 the regional tax police filed 18 legal suits against foreign citizens, and issued 27 20 Gonchar, Kseniia. Conversion within the Context of Economic Reform: The Case of Nizhnii Nov- 80 administrative protocols. Among the countries of the Commonwealth of gorod Oblast. Bonn: BICC. Paper 14, May 1998, p.48. 21 http://info.sandy.ru/socio/public/sluzhenie/edinenie/Rasd/inform.html 25 Novoe Delo, October 27 – November 2, 2000, p.15. 22 http://www.uic.nnov.ru/hrnnov/rus/nnshr/analyst/report98/report8.htm 26 “OVIR prinimaet reshenie” (Department for Visas & Registrations Takes Decision). Zakon. 23 http://www.regions.ru/news/218229.html Finansy. Nalogi, no. 31 (53), October 5, 1999. 24 Abyshev, Sergei. “Komp’iuternoe piratstvo” (Computer piracy). Birzha, no. 40, October 12, 27 Korolev, Andrei. “Rabotaesh’ v Rossii – sobliudai rossiiskie zakony” (Working in Russia? Fol- 2000, p. 8. low Russian Laws). Zakon. Finansy. Nalogi, no. 3 (69), January 18, 2000. 18 Andrei S. Makarychev

Independent States (CIS), the largest numbers of traders come from Azerbaijan and Armenia, as well as Ukraine and Belarus.28 Hence, we see some attempts to make the regional labor market more civi- lized and better organized. In November 1998, the National Central Office of Interpol was established in Nizhnii Novgorod,29 which might make foreign investors feel more secure and better protected.

Agents of globalization in the region chapter 2 and resources for internationalization

After analyzing the security environment in NNO, we will now turn to look at those institutional actors who are heavily involved in international networks, and promote the globalization process at the regional level.

2.1. Regional administration

Legal resources

The Law On International and Interregional Agreements of NNO was adopted in 1995. It states that:

– NNO as an autonomous participant of international processes has the right to conclude agreements with administrative and territorial units of foreign states, or with international organizations.

– In the areas of joint responsibility of regional and central governments, the administration of NNO negotiates the perspectives of international agreements with the federal center. In case of the federal center refusing to approve the agreement drafted by the administration of NNO, the latter may take the case to the Constitutional Court.

– Both the administration of NNO and the Legislative Assembly are entitled to sign international agreements. Approval of the Legislative Assem- 28 “Korobeiniki blizhnego zarubezh’ia” (Traders from Near Abroad). Zakon. Finansy. Nalogi, no. bly is required if the agreement under consideration necessitates passing 34 (56), October 26, 1999. new laws, involves the issues of loans, credits, or leasing natural 29 “Interpol v Nizhnem” (Interpol in Nizhnii). Zakon. Finansy. Nalogi, no. 29 (51), September 21, 1999. resources and real estate in possession of the state. 20 Andrei S. Makarychev The Region and the World 21

– All legally registered organizations in NNO (enterprises, social institu- The legal guarantees include: tions, NGOs, parties, etc.) have the right to initiate international agree- – provisions to prevent regional acts that dampen the investment climate ments. Solicitations are considered by either executive or legislative within 3 years from the date of signing the investment contract (applica- bodies, which decide on starting negotiations with foreign partners.30 ble only to private investors); The agreement between the administration of NNO and the federal govern- – state registration of investors’ deeds to real estate that guarantees prop- ment of June 1996 on power-sharing confirmed the oblast’s right to operate as a erty rights. participant in international and foreign economic relations, both in its own right and on behalf of the federal government, unless this participation contradicts fed- The property guarantees include: eral legislation. NNO has the right to conclude treaties and agreements with ter- – reimbursement of investors, omitting profits and losses incurred by non- ritorial units and ministries of foreign countries, provided that the federal legal actions, or by lack of action on behalf of officers of the regional authorities oversee them. authorities; According to an additional June 1996 agreement between the Russian gov- – provision of investors’ commitments by means of property and money. ernment and the administration of NNO, the latter is committed to render assistance to the military industry located within its territory. The federal government, Provisions regarding the sources of regional guarantees include: based on the solicitation of the oblast administration, decides on whether military – regional budget means; plants and factories should get the right to have their own contacts in foreign military markets. – assets of regional non-budget funds; The NNO Legislative Assembly adopted the law On Guarantees for Private – real estate and other assets belonging to the region. Investments in 1996. According to this law, the NNO organs of both executive Two new laws were adopted in 2000 – the law On State Support for Invest- and legislative powers have the rights: ment Activities in Nizhnii Novgorod Oblast and the decree of the NNO adminis- – to set up preferential tax rates, temporary regional tax exemptions, and tration On Procedures in Signing, Registration, and Accounting of Investment tax cuts. Only projects above US$1 million may qualify, however; Agreements. Both stipulate that regional tax privileges are applicable to those investment projects with an initial investment of RUR5 million and follow-up – to provide preferential loans and loan warranties. The Regional Legisla- funding of RUR25 million. Privileges include not only a partial tax relief, but also tive Assembly specified by its decree that these loans should in no case better conditions for leasing the land and real estate, purchasing shares of state- exceed 2.5% of the budget expenditures; owned enterprises, etc.31 – to provide conversion of the region’s debts to investors into securities Despite these privileges, there are, however, some reservations regarding with a discount possibility. This is, however, a lengthy procedure since it the NNO legislation in the area of foreign investments. Criticism basically touches necessitates registration of the emission in the Ministry of Finances, with upon the issue of preference towards specific investors. In fact, the NNO legisla- subsequent updates in the regional budget; tion grants tax privileges to investors based on several criteria:32 First, preferen- – to provide non-financial services, such as state orders on favorable con- tial treatment depends on the amount of funds, and on the industry the funds are ditions, assistance in creating business infrastructure, renting land, and being invested in. The NNO Legislative Assembly lifted duties on military equip- purchasing non-residential buildings; ment produced for export.33 It also passed legislation in 1997 providing tax benefits for manufacturers of automobiles and assembly parts, with investments of – to provide customs privileges. This issue, however, formally comes under the federal authorities’ jurisdiction. The regional administration is only in a position to solicit such privileges. 31 Shcherbo, Galina. “Investor pod zashchitoi vlasti” (Investor Under Protection of Authorities). Birzha plius finansy, no. 41, October 19, 2000. 32 “Stimulirovanie investitsionnoi deiatel’nosti v Nizhegorodskoi oblasti: mnogie za bortom” (Stimulation of Investments in NNO: Many Stay Behind). Zakon. Finansy. Nalogi, no. 38 (60), 30 “Zakon o mezhdunarodnykh i mezhregional’nykh soglasheniiakh Nizhegorodskoi oblasti” November 23, 1999. (The Law on International & Interregional Agreements of Nizhnii Novgorod Oblast), October 33 “Reforming Defense Industry: New Approaches”, press conference of the NNO Governor 26, 1995 (http://black.inforis.nnov.su/infobase/www.exe/a/nonn/upload.html). Ivan Skliarov, March 16, 1999 (http://www.sklyarov.ru/prk1603.shtml). 22 Andrei S. Makarychev The Region and the World 23

not less than US$20 million and US$5 million respectively. In 1998, investment was also empowered to introduce temporary rules facilitating the taxation of TPZ projects in the food industry were tax exempt, provided that the at least RUR6 participants.37 million were invested. Glass manufacturers can also take advantage of the In a similar way, the Investment Zone of the closed administrative territory regional law of 1999, provided that the investment funds are equivalent to US$65 Sarov was established in 1997. Enterprises registered in this zone receive up to million or more for a period of five years. In October 2000, the oblast prosecutor 75% exemption from tax payments. An enterprise for producing diamonds and gave a formal warning, stating that this law is in conflict with the federal legisla- gems was established in Sarov in 1998. tion.34 Second, the NNO legislation grants preferential treatment to investors with government shares not exceeding 25%. Such preferences do not apply if the The TPZ and the “investment zones” were a response to the failure of the investor starts performing other functions (supplier, retailer, etc.). federal reconversion program. From the very beginning, however, their implementation was resisted by the regional tax authorities. Finally, at the end of 1990s, Another controversial idea, implemented to attract foreign investments and local legislators officially questioned the advantages of these “zones”, arguing technologies, was to set up free economic zones, basically for enterprises under- that the high expectations of the past years were a miscalculation, and that the going military reconversion. This initiated the creation of the so-called Territorial free zones did not fuel the growth of the regional economy. The regional finances Production Zones (TPZ) with a simplified regime of commercial, monetary, fiscal, are said to have lost RUR260 million due to the Sarov zone, which was called “a and customs regulations. The idea came from Grigorii Yavlinskii’s think tank hole in regional economics”.38 The TPZ advantages are actually granted to a spe- “EPICenter” in 1993, as a part of the program for technical and scientific capacity- cific plant or factory only for a period of one and a half to three years on the basis building in the region.35 It became feasible when the Russian government issued of their achieved economic results.39 the decree “On Investment Tax Credit for Several Enterprises of NNO” in Janu- ary 1995. A few days later, the NNO administration began its practical implementation.36 The advantages of TPZs were: Institutional resources – provision of an annual investment tax credit for the sums transacted to According to the Charter of NNO, it is the Regional Legislative Assembly that is the federal budget and cashed in accordance with the law for a period of in charge of approving the programs of economic development, introducing tax 5 years; and tariff benefits, and determining the conditions for the issue of regional loans. In practice, however, these affairs have been predominantly decided by the NNO – exemption from profit, value-added, and property taxes, the regional administration.40 road fund, and part of the excise duties paid to the region; Within the structure of the NNO administration there are two units in – exemption from taxes paid to the city and to the district where the TPZ is charge of international cooperation: the Department of International Contacts and located; the Department of Foreign Economic Contacts & Resources. The Interdepartmen- – reduced payment of public utilities; tal Board on Foreign Economic Activities was established in 1998. The problem is a lack of clarity between these organs about shared roles and responsibilities. This – possibility of accelerated depreciation rates for equipment and building; results in functional overlapping and bureaucratic impediments. – substantial customs privileges. The regional administration is also in charge of humanitarian issues related In particular, using the TPZ legislation, the State Customs Committee was in to foreign contacts. Thus, the adoption sector of the Department of Education has a position to issue temporary licenses for constructing and maintaining “free storage” for those enterprises that were part of the TPZ (mostly these were defense 37 Kronskii, V. S. and S. V. Antiuganov. “Organizatsionno-pravovye aspekty territorial’no- industry plants such as “Lazur”, “Saliut”, and the Petrovsky factory, formerly proizvodstvenykh zon v Nizhegorodskoi oblasti” (Organizational and Legal Aspects of Ter- ritorial Industrial Zones in Nizhnii Novgorod Region). Gosudarstvo i pravo, no. 12, 1997, pp. funded by the federal government). The Nizhnii Novgorod Customs Department 27-30. 38 Tsygankov, Alexei. “Predpriiatiiam v zone khorosho, a biudzhetu plokho” (The Enterprises Feel Good in the Zone, While the Budget Suffers). Zakon. Finansy. Nalogi, no. 30 (52), Septem- 34 Ivanova, Snezhana. “Prokuror protestuet” (Protest of the Prosecutor). Birzha plius finansy, no. ber 28, 1999. 41, October 19, 2000. 39 Tsygankov, Alexei. “TPZ kak zerkalo ekonomiki” (TPZ as Mirrors of the Economy). Zakon. 35 Konovalov, Mikhail. “Zona svobodnogo predprinimatel’stva v Nizhnem. Ne mechta li eto?” Finansy. Nalogi, no. 8 (74), February 22, 2000. (Free Enterprise Zone in Nizhnii – Isn’t It A Dream ?). Birzha, no. 40, October 1993, p. 2. 40 “Stimulirovanie investitsionnoi deiatel’nosti v Nizhegorodskoi oblasti: risk bez garantii” 36 Iakovlev, G. S. “Analiz i perspektivy razvitiia TPZ” (Analysis and Developmental Perspec- (Stimulation of Investments in NNO: Risk Without Guarantees). Zakon. Finansy. Nalogi, no. 40 tives of TPZs). Vestnik ekonomicheskikh reform, 18.06.1999. (62), November 30, 1999. 24 Andrei S. Makarychev The Region and the World 25

important prerogatives in regulating the process of adoption of local orphans by ecological modernization of this area.45 Lufthansa, the official German carrier, has foreign citizens (creation of a regional database, registration of foreign applicants, been operating non-stop flights to Frankfurt since 1996. Upgrading the control of allowing adoption of children who have not been requested for adoption by Russ- the Nizhnii Novgorod airport’s air traffic has enabled an increased level of flight ian citizens within five months, and monitoring post-adoption reports).41 safety in accordance with the ICAO’s Category II standards. The region’s administration also created a number of independent institu- NNO was included in a project to construct a high-speed railway to link it tions (although fostered by official authorities) which advance international coop- with major European cities through Moscow and St. Petersburg. The Third Euro- eration. These include: pean Conference on Transport, held in Helsinki in 1997, added NNO to its Corri- dor No. 2, which would begin in Berlin and extend east of the Urals. NNO is also – Regional Investment Promotion Agency, 1996; part of the Corridor No. 9, which would connect the Baltic with the Black Sea and – Regional Development Agency, 1997. This institution was financed by the Caspian Sea areas. It is the only Russian city, except for Moscow, that is included Russian-Dutch Technical Assistance Program; in both corridors. Thus, NNO has the opportunity to participate in the formation of the European transportation services market, and gain thousands of new jobs. – Regional Center for Volunteer Certification which deals with solving To become an integral part of the European transport corridor, however, large technical issues in order to facilitate access of NNO products to foreign investments are required: US$20 million to build a cargo terminal at Strigino air- markets;42 port, US$2 million to erect a container terminal in the Nizhnii Novgorod River – Center for Business Information which provides world-wide access to Port, and US$19 million to clean up old oil storage facilities. Sources for the fund- information resources; ing of these projects are still unknown. Meanwhile, Samara Oblast has challenged Nizhnii Novgorod’s ambitions, and proposed an alternative transportation proj- – “PRINT” Institute which facilitates access to international markets for ect to the EU authorities.46 local technologies and know-how; – Regional Agency for International Technical Assistance, mostly working Political resources on TACIS-sponsored projects;43 Political resources of the region should be analyzed, first, within the context of the – Association of Participants of International Internships which promotes legacy of former governor Boris Nemtsov, who raised the issue of international- young professionals who have experience in studying and working ization as one of the cornerstones of his strategy of regional development. He was abroad;44 one of the first regional leaders to be given the floor in the Davos World Economic – “Applied Inter-science” institute which is in charge of promoting local Forum, where he first introduced future prime minister Kirienko to the world’s high-tech products internationally. economic elite.47 Nemtsov, in his capacity as NNO governor, frequently com- mented on Russian foreign and security policy issues. His most widely known 48 Transport infrastructure initiatives included an appeal to halt the war in Chechnya, a proposal to Russ- ian businesses to buy the property in Sevastopol’ under federal government guar- According to the agreement between the European Union (EU) and the Russian antees, and harsh criticism of rapprochement with Belarus.49 Federation, all waterways traversing NNO are open to international navigation. Nemtsov’s governorship was, however, very controversial. He was attacked The international cargo container terminal and the logistics center were built in in the media for relying too heavily on foreign expertise in security issues.50 He proximity to the Nizhnii Novgorod River Port. In the future, Nizhnii Novgorod might play an important role in the implementation of the “Volga – Caspian Sea” project (still under consideration), aimed at technological, transport-related, and 45 Kosarikov, Aleksandr. “Forum dast novyi impul’s razvitiiu Nizhnego Novgoroda” (The Forum will Boost Nizhnii Novgorod Development). Gorod i gorozhane, no. 9, May 11, 2000, p. 5. 46 Birzha, no. 45, November 16, 2000, p. 3. 41 Delo, September 15-22, 2000, p. 5. 47 Astaf’eva, Nataliia. “Nemtsov v Davose: traditsii, otlichiia i posledstviia” (Nemtsov in Davos: 42 “O sozdanii regional’nogo ispytatel’nogo tsentra dobrovol’noi sertifikatsii” (On the Creation Traditions, Differences, and Consequences). Monitor, no. 5 (29), February 12-18, 1997, p. 3. of the Regional Testing Center for Volunteer Certification), (http://black.inforis.nnov.su/ 48 “Protiv voiny” (Against the War). Birzha, no. 2, January 1996, p. 2. infobase/www.exe/a/nonn/upload.html). 49 Kommersant-daily, no. 13, February 18, 1997. 43 http://www.dves.innov.ru/rus/dves/TACIS.htm. 50 Makarychev, Andrei. “Konversiia v perevode s ital’ianskogo?” (Conversion as Translated 44 http://www.ast.innov.ru. from the Italian). Birzha, no. 37, September 1992, p. 2. 26 Andrei S. Makarychev The Region and the World 27

was involved in conflicts with the managers and directors of the largest regional The CNN administration has the legal right to sign investment agreements enterprises (including the Nizhnii Novgorod Fair) who criticized his lack of atten- with foreign companies, and to conduct a variety of other international-related tion to their businesses. Nemtsov’s appeal to government officials to exchange activities. The main body in charge of contacts with foreign partners in the CNN their foreign cars for Russian ones was seen as a typical case of protectionism.51 administration is the Department of Interregional & International Relations. Among its tasks are: The public perception of his governorship is no less controversial. Thus, according to a survey conducted in the aftermath of his resignation by a local soci- – coordination of international plans between administrative units of the ological institute, 63% of the respondents assumed that fostering the international city administration and municipal districts; prestige of Nizhnii Novgorod was an important task, but only 47% said that it – increasing the export potential of the city manufacturers; was being properly implemented. The importance of inviting world-class artists to the region was acknowledged by 55% of the people interviewed, but only 39% – assisting those city enterprises that produce goods that replace imports; were of the opinion that this was being duly implemented.52 – facilitating all issues related to issuing visas and providing foreign part- Ivan Skliarov, his successor, has explicitly distanced himself from ners with duly prepared invitations.56 Nemtsov’s heritage, which he thought was built upon “western manuals” and The CNN administration in 1999 hired the former director of the Interna- “artificially imposed rules”.53 He advocates more state control over foreign eco- tional Relations Departments at the NNO administration, Igor Maskaev, to nomic contacts. His international credentials are rather poor – according to Sergei become the representative of the city in Moscow. His duties include conducting Voronov, a Member of the Regional Assembly, the current administration lacks negotiations with international organizations interested in working in Nizhnii any sort of proposal in the domain of economic innovations.54 Novgorod.57

2.2. Municipal authorities Some structural changes were introduced in the sphere of foreign relations. The Agency for Economic Development was established within the city adminis- The full-fledged system of self-government in the city of Nizhnii Novgorod tration, and proposals to grant tax reliefs for investors were introduced to the City (CNN) was established in the fall of 1998, when Yurii Lebedev was elected mayor Duma. of the city. Before his election, there had been a lot of uncertainty surrounding the The CNN administration was the first administrative unit to react to the mayor’s post and powers. Because of a conflict between the governor and the first drastic decrease of foreign tourists coming to the city. The Office of Tourism in the chief executive of CNN, the latter was fired by the Russian president. Then there CNN administration launched a new program aimed at increasing the city’s was a brief period when Ivan Skliarov was mayor. He was completely under the attraction to foreign visitors. Certification of excursion guides and special vehi- control of the governor, and when Skliarov himself became the regional chief cles, the establishment of the City Center of Hospitality, launching a new project executive, he was succeeded by Andrei Kliment’ev, who, immediately after the “Gifts from the Pocket of Russia”, and other initiatives are currently underway.58 election, was accused of financial wrongdoings and put in jail. In general, Yurii In July 2000, CNN Mayor Yurii Lebedev announced the forthcoming privatiza- Lebedev’s predecessors didn’t show a high profile in international issues, with tion of three major downtown hotels. some rare exceptions like the former mayor Dmitrii Bedniakov’s contract with “Khuri Enterprises, Inc.”, which became the first US-based company to open a In a less formal way, the mayor of CNN began meeting with the Club of For- fast food restaurant in CNN.55 eign Residents of Nizhnii Novgorod. This club brings together business people and educators living in this area. Meetings with representatives of foreign communities (Vietnamese, Korean, and Azeri) were also convened.

CNN is a participant in the trilateral cooperation project “Local Democratic 51 Makarychev, Andrei. “Boris Nemtsov kak faktor mezhdunarodnoi politiki” (Boris Nemtsov as a Factor of International Politics). Birzha, no. 12, March 1997, p. 2. Network”, which also involves Bologna (Italy) and Tampere (Finland) within the 52 Strelkov, Dmitrii. “Nasledstvo gubernatora” (Governor’s Heritage). Birzha, no. 14, April 1997, framework of the “Twinned Cities” program administered by TACIS. The project p. 12. 53 Vasil’kov, Andrei. “Strategiia rosta daetsia neprosto” (Growth Strategy is not that Easy). Trud, no. 47 (2000). 54 http://www.monitor.nnov.ru/2000/number38/art32.phtml 56 http://www.admcity.nnov.ru/goradm/deport/megh/pmos.html 55 Fedorova, Tat’iana. “O chem molchit mer” (Why the Mayor Keeps Silence). Delo, no. 10 (70), 57 Soleeva, Tat’iana. “Igor’ Maskaev otkazalsia ot raboty v Vashingtone” (Igor Maskaev Refused March 4-10, 1999, pp. 1-2. to Take the Job in Washington). Monitor, no. 40 (163), October 11-17, 1999, p. 8. 28 Andrei S. Makarychev The Region and the World 29

commenced in 1999, and was one of 19 accepted applications out of 60 candidates. external social contacts (sport, tourism, exchange programs), participation in It is aimed at upgrading the information networks in CNN, opening several pub- international trade, investment attractiveness, and direct contacts with foreign lic offices with free access to the city databases, and educational retraining. The NGOs – also showed a clear advantage for CNN. budget for the project amounts to US$120 million.59 From the very beginning, Yurii Lebedev’s administration was determined to Based on the existing “twinning” experience, CNN mayor Yurii Lebedev position itself autonomously vis-à-vis the oblast authorities. Nonetheless, it is not signed another trilateral agreement in June 2000 between CNN, Tampere (Fin- very easy to determine the demarcation line between the powers of regional and land), and Essen (Germany). It will focus on municipal management, a water municipal administrations. The investment agreement with the “Spring Invest- supply system, environmental protection, and sports and youth policy.60 Private ments” group for the construction of a hotel in the Nizhnii Novgorod downtown companies and EU funds will be involved.61 Twin city relations have also been area was, for example, co-signed by both regional and city authorities. The case established with Linz (Austria), Brno (Czech Republic), and Hampshire county raised much controversy since the agreement was unilaterally abrogated by the (Great Britain), although with much less efficacy. NNO governor.64 In contrast to the position taken by Governor Skliarov, Mayor Lebedev pledged to continue the hotel’s construction, and thus to honor the rights The CNN administration is working with the Eurasia Foundation on updat- of investors, stressing that foreign entrepreneurs should make a distinction ing the system of social services. In the cultural spheres, the CNN administration between the leaders of the city and those of the oblast.65 Nonetheless, CNN still signed an agreement with the Goethe Institute to popularize the German arts in needs to attract more investors, and many promising international projects are Nizhnii Novgorod. An architectural exposition of the CNN was also held in Tam- currently delayed due to insufficient tax incentives and lack of political guaran- pere. The CNN administration is in close touch with the Soros Foundation, which tees. This fact was publicly recognized by the director of the Agency for Economic is funding the project aimed at increasing Internet access to several districts of the Development of Nizhnii Novgorod, Roman Vvedenskii, in August 2000. city.62 Another widely circulated story that shed some light on regional-municipal Yurii Lebedev has been criticized in the local media for paying too much relations was the purchase of 24 second-hand MAN buses by the CNN mayor.66 attention to international projects at the expense of dealing with local problems, The deal was concluded during Yurii Lebedev’s visit to Munich and Frankfurt in yet this criticism is a good indication of the changes that have occurred within the the spring of 2000, and immediately provoked harsh criticism in the region, since municipal power. The challenges of globalization push the CNN administration non-electric public transportation falls within the jurisdiction of the NNO admin- to jealously monitor the city’s image abroad. The mayor of CNN filed a legal suit istration. Consequently, the CNN Duma refused to vote in favor of securing in August 2000 against the “Sunday Times” of London, which had published an financial guarantees for this contract in the form of a “Sberbank” loan, arguing article claiming that “Nizhnii Novgorod is at the forefront of … a return to that the mayor should have spent these funds for new local buses produced by medieval vigilante patrols and punishments”, referring to the alleged practice of the Pavlovo factory. The city legislators also claimed that the CNN administration putting thieves and drug addicts on public display.63 had concluded the deal with the “MAN” company without prior consultations The survey conducted for this study showed that in comparing NNO and with experts or putting it up for any sort of public tender.67 Another problem CNN in terms of the development of resources for international activities, the involved the custom duties, which the federal government refused to lift. Under experts (both local and international) are almost unanimous in giving priority to these circumstances, the CNN administration was severely criticized for cancel- CNN. The largest gap between the region and its main city was recorded in the ing all preferential and “social” rates while using the German buses, since the development of supporting services (hotels, telecommunication facilities, etc.). monies spent should be returned as soon as possible. All other indicators – institutional and administrative resources, implementation Debates about the MAN commercial deal raised a number of important of international agreements, Internet-based marketing strategies, intensity of issues, ranging from raising the competitive advantages of the Pavlovo buses to defending the local market from foreign automobile producers eager to create a

58 http://www.regions.ru/news/237719.html 59 http://www.innov.ru/dmmo/1102.htm 64 Lysov, Viktor. “My deneg ne shchitaem” (We Do Not Count the Money). Birzha, no. 34, 60 http://www.regions.ru/news/249618.html August 27, 1998, p. 5. 61 http://www.regions.ru/news/247853.html 65 Ivanova, Snezhana. “Nizhnii Novgorod ishchet investorov sam” (Nizhnii Novgorod is Inde- 62 Khasina, Liliia. “Fond Sorosa pomogaet tem kto umeet rabotat’” (Soros Foundation Helps pendently Looking for Investors). Birzha plius Finansy, no. 3, December 9, 1999, p. 2. Those Who Are Able to Work). Otkrytoe obshchestvo, no. 2 (14), 2000, p. 12. 66 http://www.regions.ru/news/226680.html 63 Franchetti, Mark. “Russians mete out justice of the cage”. Sunday Times, July 30, 2000. 67 http://www.regions.ru/news/241954.html 30 Andrei S. Makarychev The Region and the World 31

whole network of car-related facilities (including technical services, spare parts, A number of banks participate in the Swift, Sprint or Western Union money and gas stations) in the region.68 This story is also an instructive illustration of the transfer systems, as well as the Visa and Master Card/Eurocard international interrelatedness of political institutions at all levels in Russia. Each level has its credit card systems. “Ellips Bank” was the first banking institution in NNO to say in international policy. In the above example municipal, regional, federal, and offer its clients services through the Internet in April 2000. foreign actors were all directly involved in the decision-making process, and had The following table illustrates the dynamics of the NNO international trade to interact. between 1997-1999 (all figures are in millions of US$). It is also worthwhile mentioning that political confrontation with the NNO administration has led to huge financial problems for CNN. Its budget for 2001 1997 1998 1999 was cut from RUR6.3 billion to RUR2.2 billion; this may have deplorable consequences for the whole city. Import 951,7 687,8 916,0 It is interesting that the city of Bor, which, like CNN, also has the status of a Export 629,9 462,8 274,0 local self-government unit, became Russia’s leader in terms of foreign investment Saldo 322,0 225,0 600,0 per capita in 1998. “Glaverbel”, “Parmalat”, “Tudor”, “Europe Foods GB”, “Balta”, “DHAL Leipzig”, and other major Western European companies have invested or established joint ventures in Bor.69 Information resources

Vladimir Ivanov, the head of the Bor administration, gave two reasons for The local media market is dominated by outlets adhering to liberal (65%) or cen- this phenomenal success. First, the local self-government is committed to reliev- trist views. Only 20% of the newspapers are controlled by the regional authori- ing foreign businessmen from having to deal directly with numerous supervising ties.72 Nonetheless, the level of openness regarding the circulation of information red-tape institutions such as the offices of sanitary and environmental control. In of NNO has been assessed as relatively low. According to a study of the Public case of possible claims from such institutions, the Bor administration pledges to Expertise Project, the region’s index of accessibility to information is as low as not involve the investors, and to not harm their interests. Second, prior to signing 38%, and the index of the dissemination of information is as low as 22.4%.73 any investment contracts the Bor administration lobbied for the NNO Legislative Actually, about 20’000 residents of NNO regularly use e-mail, and more Assembly to offer five years of interest-free credit to investors, should changes in than 7’000 work with the Internet.74 The American Intel Corporation held a series the federal legislation result in increased taxes.70 of workshops in June 2000 aimed at expanding the scope of e-commerce in Rus- sia and in Nizhnii Novgorod in particular.75 2.3. Individual enterprises In the communication sector, “Nizhegorodsviazinform” established a joint stock company in cooperation with the American company “US West” to carry Financial and economic resources out the installation and maintenance of digital cellular communication systems of About 72% of the enterprises located in NNO are on private property. There are GSM standard. Another considerable project in this sector was implemented by 642 companies with foreign capital in NNO. In total, there are 1192 institutions the “Nizhnii Novgorod Information Network”, 26% shares of which belong to the involved in international trade and commerce in the region.71 The first privatiza- British Flamington investment fund. tion auctions in Russia were held in Nizhnii Novgorod. The European Bank for NIS Company of Nizhnii Novgorod signed an agreement of cooperation Reconstruction and Development (EBRD) chose NNO to pioneer its Small Busi- with US company iDirect to upgrade communication channels, and to create an ness Lending Program in 1993. A post-privatization pilot project, designed by the World Bank, and funded principally by the British Know How Fund, was launched in 1997. 71 http://www.regions.ru/news/187455.html 72 Okmianskii, Vladimir. “Ot monologa k dialogu i raznogolositse” (From Monologue to Dia- logue and Polyphony.) Rossiiskii konstitutsionalizm: politicheskii rezhim v regional’nom kontekste (Russian Constitutionalism: Political Regime in Regional Context). Moscow: Moscow Public 68 MK v Nizhnem Novgorode, June 29 – July 6, 2000, p. 12. Science Foundation, 2000. 69 “V spiashchie regiony den’gi ne tekut” (There Will Be No Money Inflow for Sleeping 73 http://www.freepress.ru/win/subject/45.htm Regions). Ekonomika i zhizn’, Moscow edition, no. 11, March 2000. 74 Logvanov, Andrei. “Internet eshche tol’ko nachinaetsia” (Internet Is Just Starting). Birzha, no. 70 “Investitsionnyi bum v otdel’no vziatom raione” (Investment Boom in a Separate District). 16 (453), April 27, 2000, p. 8. Zakon. Finansy. Nalogi, no. 15 (37), June 15, 1999. 75 Nizhegorodskie novosti, July 24, 2000. 32 Andrei S. Makarychev The Region and the World 33

Internet Stock Exchange. Projects with several American companies (APV Capital Russia are the main obstacle to further cooperation. This forces foreign partners Management, I.L.A Group, Metromedia) are under consideration.76 NIS was con- to cooperate mainly with former Soviet collective farms. tracted by Boris Nemtsov, who is in charge of implementing a joint project with Great Britain: Typical for NNO cooperation with this country is the entry of the Soros Foundation aimed at providing Internet access to secondary schools, British companies in the regional market, following initial contacts at the official hospitals, libraries, and museums.77 level. These include Glaxo Welcome Russia, Quest Int., ICI Katalco, Kraemer Cor- porate Development, Drum Resources, DEXMA, Bovis International, and other 2.4. Foreign actors and their projects firms from Great Britain.78 Foreign institutions, committed to providing technical assistance to NNO, have established a set of new institutions in order to facilitate the region’s international Areas Forms of cooperation integration. Several types of international projects in NNO can be distinguished. Small and medium The British Know How Fund and ULG business support Consultants Ltd. provide a network of mar- NNO relations with foreign countries keting centers79 (Rural Consultancy Centers, Volgo-Viatsky Privatization Center, Technical The first type encompasses NNO relations with foreign countries. The most fruit- Assistance Center). ful cooperative projects are being developed with the following states: Agriculture Consultation in land privatization aimed at The Netherlands, through the PSO and PSO Plus programs, which consist of forming market sectors in NNO agriculture. 23 demonstration projects designed for future extension to other regions of Rus- Rural consultancy units were established with sia. The government of the Netherlands in fact took on the risks involved in the assistance of the Agricultural Development endeavor of Dutch companies to find new partners and markets, mainly for agri- Advisory Service.80 cultural products and equipment. To lower these risks, tenders were arranged Assistance for English teachers, lecturers, and among the Russian counterparts. The underdeveloped land market relations in Educational affairs (British Council office in students wishing to continue their training in Great Britain. Correspondence courses and Areas Forms of cooperation Nizhnii Novgorod) Cambridge exams are also available. Together Environment Water purification, refuse reprocessing, with the Department of Education, and the energy-saving street illumination based on NNO administration, the British Council runs a Dutch technologies. The Dutch government has project dealing with the education of children 81 also assisted in establishing the Agency for at risk. Environmental Development. Health care projects Assistance to patients with blood diseases and (financed by the Nizhnii to military servicemen from NNO who were Institution building The Regional Development Agency was Novgorod branch of the wounded in Chechnya.82 established with a Dutch government grant in Russian-British Council the form of equipment and software. on Social & Economic Partnership) Municipal management Upgrading municipal property Agriculture Using Dutch technologies for growing onions and raising cattle 78 “O provedenii prezentatsii Nizhegorodskoi oblasti v Posol’stve Korolevstva Velikobritanii v Retail trade Moskve” (On Presentation of NNO in UK Embassy), the NNO official world web site Installation of Cash & Carry centers (http://www.sklyarov.ru/news/sobitia.htm). 79 http://innov.ru/rus/bis_nn/org/inkom.htm. 80 Lysov, Viktor. “Angliiskie sovety dlia russkogo sela” (English Advice for Russian Villages). 76 Allo, Nizhnii Novgorod, no. 43 (55), October 24-30, 2000, p. 15. Birzha, no. 36, September 14, 2000, p. 8. 77 Kessariiskii, Eval’d. “Internet-demokratiia po-nizhegorodski”(Internet Democracy: Nizhnii 81 http://www.britishcouncil.ru/russian/nihome.htm. Novgorod Model). Allo, Nizhnii Novgorod, no. 35 (47), August 29 – September 4, 2000, p. 15. 82 http://www.regions.ru/news/203147.html. 34 Andrei S. Makarychev The Region and the World 35

Cooperation with Finland includes the following areas and forms of the Czech Republic. GAZ was able to take advantage of the NNO Exhibition Days cooperation: in the Czech Republic in 1998, signing an agreement with Brana and Vulkanplast companies. Governor Ivan Skliarov signed a Memorandum on Developing Coop- Areas Forms of cooperation eration with the Ministry of Industry & Trade of the Czech Republic in August 2000.88 Wood processing Joint ventures CIS countries: Among the CIS countries, NNO has some commercial interests Transportation Creation of the logistics center at the Gorky in Belarus. The NNO administration and the government of Belarus signed a pro- Railroad with Finnish assistance. gram in March 2000 to foster bilateral trade and commercial links. The Trade House Belarus-Nizhnii Novgorod will be established soon.89 One of the major Paper packaging plant Will be built and managed by Stora Enso commercial projects, Union TV, which had been implemented by the Nitel plant Packaging83 of Nizhnii Novgorod and the Gorizont plant of Minsk, was, however, brought to a halt in August 2000 because of poor marketing and the insufficient quality of the Germany: Within the framework of the German government-sponsored pro- spare parts supplied.90 gram PPP (Public Private Partnership), Rohde & Schwarz, one of the world lead- Relations with Ukraine (specifically with Donetsk, Poltava, Zaporozh’e, Vin- ers in radio communication and air traffic control systems, launched a new nitsa, and Kirovograd regions) are still nascent.91 Nizhnii Novgorod businesses cooperation project with the Nizhnii Novgorod-based Poliot company. export cars, spare parts for cars, and chemical items to Ukraine, while importing Asian and Middle Eastern countries: The government of Japan granted credit food products and haberdashery. for the US$127.5 million project of building a pharmaceutical complex in the town In general, the CIS countries’ share in the external commerce of NNO of Kstovo in 1998. Singapore has recently expressed some interest in cooperating amounts to less than 30%.92 The modest economic relations between NNO and with, yet the specific areas of mutual interest are still to be defined (most likely CIS countries illustrate the gap still existing between the insistence of the Ministry these areas will include the chemical industry, food, and transportation).84 Fur- of Foreign Affairs on giving priority to links with former USSR republics and the ther contacts with other Middle Eastern and Asian nations (Iraq, Iran, Turkey, real exigencies of Russia’s regions. and Vietnam) have also been established, mainly in the spheres of car and ship building. Cooperation with the Republic of Korea is mainly due to a local busi- nessman of Korean origin, Liubomir Tian, who is a member of the World Associ- NNO international programs ation of Korean Business People. The second type consists of projects that are implemented on the basis of specific Central European countries: NNO also has business ties with a number of Cen- international programs: tral European countries. Most important among these is the connection with Hun- The EU TACIS Program sponsors several important projects, including gary on purchasing GAZ cars and equipment for the food processing plant in “Domestic River Routes of Russia” (US$900’000 for logistics equipment and con- 85 NNO. In April 2000, Budapest hosted a series of economic seminars advertising struction of the river terminal), “Development of Transport Infrastructure of business opportunities in NNO. The bulk of these proposals, however, are still in NNO” (US$2 million), and “Extension of Pipelines for Improving Gas Supply to 86 their infancy. the Western Regions of Russia” (US$2 million). Other projects include: “Reviving Cooperation with the Czech Republic in cultural and educational matters is the Volga”, “Development of Russia’s Aviation”, “Upgrading Cargo Facilities in quite noticeable.87 In the economic domain, joint projects are underway in the fol- the Railways”, “Development of Automobile Transportation”, “Upgrading Tech- lowing areas: plane building (Sokol plant), oil and chemistry, and wood process- nical Characteristics of Sormovo Electric Station”, “Personnel Training for the Big ing. Nizhnii Novgorod companies export paper, chemical products, and metals to 88 Birzha, no. 36, August 14, 2000, p. 10. 89 http://www.regions.ru/news/197017.html. 83 http://www.region.ru/news/244635.html. 90 http://www.regions.ru/news/286351.html. 84 http://www.monitor.nnov.ru/2000/number 19/art16.htm. 91 “Nizhnii – Ukraina: vozmozhnye grani sotrudnichestva” (Nizhnii – Ukraine: Eventual Facets 85 http://www.regions.ru/news/217709.html. of Cooperation). Nizhegorodskie novosti, July 11, 2000. 86 http://www.regions.ru/news/206525.html. 92 “Nizhegorodskii eksport: zametny priznaki stabilizatsii” (NNO Export: Signs of Stabiliza- 87 http://www.regions.ru/news/199037.html. tions are Noticeable). Zakon. Finansy. Nalogi, no. 36 (58), November 10, 1999. 36 Andrei S. Makarychev The Region and the World 37

Volga”, and “Retraining Military Officers”. TACIS also funds a project entitled Lombardy in Italy: “Assistance to Small High-Tech Enterprises in NNO”, which is important for rebuilding a technological infrastructure within the region, and helping high-tech Areas Forms of cooperation producers from NNO acquire access to international markets.93 TACIS projects Wood processing Purchase of Russian wood materials also help bring new Western European companies to NNO. This was, for example, the case with the British company Scott Wilson Kirkpatrick which began its busi- Automobile service Upgrading GAZ cars ness in NNO, starting from a TACIS-sponsored project in local transportation. Food industry Joint ventures (under consideration) The BISTRO program targets the renovation of city transportation.94 The International Finance Corporation (IFC) provides credits to different enterprises Chemical industry Purchase of chemical products from from the region (among the recipients is the Volga paper-making plant). The Dzerzhinsk World Bank extended its Housing Project, aimed at upgrading urban building Medicine Joint venture to produce blood medication facilities and developing market relations and land usage, to NNO in 1994-95. Humanitarian projects Italian language training courses NNO international agreements with foreign regions Personnel management Training and retraining courses The third type includes direct agreements on cooperation between NNO and the regions of foreign states: North Rhine-Westphalia in Germany: An agreement on bilateral cooperation was signed in 1993, stipulating its implementation in the form of the projects. The Relations between NNO and the Swientokszy region in Poland are also being NNO office was opened in Hessen in 1997, and the North Rhine-Westphalia developed. The two regional partners signed an agreement in 2000 on mutual regional Office for Economic Contacts was opened in Nizhnii Novgorod, and is cooperation that underlines the importance of areas such as the environment, 97 also in charge of dealing with other Volga regions. It is aimed at providing assis- agriculture, the food processing industry, and car building. tance to NNO enterprises in selecting their partners in Germany through databases, drafting and analyzing commercial proposals, conducting negotiations, Private foreign investment and joint ventures translating documents, elaborating business recommendations, etc.95 Added to The fourth type of institutional contacts comprises private foreign investments in this is also the experience of the joint marketing group Deutsch-Russische Consult the regional economy and the establishment of joint ventures: AG, established by NNO and North Rhine-Westphalia. It provides consulting and communication services, commercial risks assessments, information supply, facil- – The investment agreement, signed in 1997 between the administration of itation of international visits, and the retraining of personnel.96 NNO, the administration of the Bor district, and the Belgian company Glaverbel (a subsidiary of Japan’s Asahi group), stipulated direct investments of US$35 million to reconstruct the Bor glass factory, which pro- duces about 90% of the car glass in Russia. Glaverbel purchased 25% of the factory’s shares, along with the European Bank for Reconstruction & Development, which bought 19.3% of the Bor stock. It is telling that Glaverbel decided to continue investing in NNO even in 1999, when the region’s international credit rating had practically defaulted.98

– The agreement between the GAZ Factory, Fiat, and the EBRD paved the way for the creation of the Nizhegorod Motors joint venture. GAZ and

93 http://www.innov.ru/tacis/info.htm. 94 http://www.dves.innov.ru/rus/dves/ves2000.htm. 97 http://www.birzhaplus.sandy.ru/birzha/6.htm. 95 http://www.innov.ru/nrw/serv. 98 “Evrozaem: investory restrukturizatsii ne boiatsia” (Euroloan: Investors Are Not Afraid of 96 http://www.innov.ru/drc/rus. Restructuring). Zakon. Finansy. Nalogi, no. 32 (54), October 12, 1999. 38 Andrei S. Makarychev The Region and the World 39

Fiat hold 40% of its shares each, while the remaining 20% is in the pos- survival. The Nizhnii Novgorod offices of Alfa Bank and Lufthansa, for example, session of EBRD. The first cars assembled in Nizhegorod Motors are due launched a joint commercial project providing holders of Visa and Master Cards in the fall of 2002. with special prices for airfare tickets. – The GNT Global Properties company of Cyprus became the owner of the GAZ is another example of both the possibilities and limitations of this strat- “Volga-flot” navigation company, providing cargo transportation across egy. The British Rover Group was contracted to update GAZ engines for new the Volga river. Volga models. A joint venture with Czech company Brano was created.103 The contract with the Bosch company of Germany was signed in July 2000 to provide – The Electrolux company of Sweden invested about US$8 million in start- fuel filters and ventilation equipment for new Volga models.104 A joint venture ing the manufacture of washing machines at the Sokol plant. between the Primitek company of Italy and the Etalon plant of Nizhnii Novgorod – With the assistance of Belov and Company Inc., Coca-Cola Inchcape invested was established in 2000 in order to produce electric equipment for the GAZ-Fiat US$24 million in a bottling and distribution center. project.105 Significantly, the “Nizhegorod Motors” project is linked technologi- cally to the investment agreement between Glaverbel and the Bor glass factory. – Wella AG, a German hair care and cosmetics company and is working with their Russian partner in the area of chemical products and has put GAZ sells all its cars together with Steyer engines provided by the German up more than US$15 million towards a manufacturing facility in a joint company REGE Motorenteile abroad.106 GAZ has established Eastmotors, a joint venture with Russian chemical manufacturer Kaprolactam in the city of venture with two US companies, Frigetta and ESTS, in Baltimore. Eastmotors will Dzerzhinsk. This is where another German company, Knauf, is investing adjust GAZ cars to the requirements of the Latin American market, and sell them nearly US$5.5 million in a joint venture with the Avangard chemical com- in those countries (except for Argentina with which GAZ has special arrange- pany to produce gypsum board products. ments).107 It is possible that GAZ might earn as much as US$100 million in exporting its cars overseas by the year 2000. By 2005, the total amount of export – The US Sagmel pharmaceutical company and Nizhfarm have launched a joint will have increased to 20’000 cars.108 project to start the production of Perrigo pharmaceuticals in Nizhnii Novgorod.99 In September 1994, the GAZ automobile factory registered a proposal for the First Automobile Loan. In August 1997, GAZ signed a contract for rating consul- – Geldbach, a German company, entered into a joint venture with the Kule- tations with Credit Suisse – First Boston bankers which would provide assistance baki metallurgical plant.100 in obtaining the credit rating and allocation of securities. The Krymavtogaz com- – Uhde Krupp is investing US$130 million in cooperation with the Elenac pany was established in Crimea in order to promote Gazel and Sobol vehicles company towards building a new chemical plant in Kstovo by 2002.101 abroad.109

– The British company BPB Gypsum won the license for extracting gypsum Even GAZ, with its rather well developed network of contacts, is, however, and producing construction blocks in the Pavlovo and Bogorodsk dis- not financially secure. In the spring of 2000, the GAZ administration was forced tricts of NNO.102 to consider the possibility of selling all its shares in Nizhegorod Motors to the EBRD and to the administrations of NNO and CNN.110 Because of a lack of inter- – Wieland Schwarzkopf of Germany is investing in the overhaul and repara- est from foreign investors, GAZ was acquired by Sibirskii Alluminyi (“Sibal”) in tion of an amusement center in Nizhnii Novgorod, one of the few projects the fall of 2000. This marked a new stage in its adaptation to market conditions. of this sort. – McDonald’s has opened several restaurants in Nizhnii Novgorod.

There is a steady tendency to link separate investment projects together, to 103 “BRANOROS dlia GAZa” (BRANOROS for GAZ). Zakon. Finansy. Nalogi, no. 33 (55), October form “investment chains”. Under the current economic hardship, only those 19, 1999. enterprises that have managed to create business networks have any chance of 104 Nizhegorodskie novosti, July 24, 2000. 105 Nizhegorodskie novosti, July 11, 2000. 99 Birzha plius finansy, no. 38, September 28, 2000, p. 1. 106 http://www.regions.ru/news/203717.html. 100 http://www.regions.ru/news/242476.html. 107 http://www.regions.ru/news/242237.html. 101 http://www.regions.ru/news/201938.html. 108 Nizhegorodskie novosti, July 21, 2000. 102 http://www.regions.ru/news/201333.html. 109 Kommersant, no. 201, October 28, 2000. 40 Andrei S. Makarychev The Region and the World 41

International financial agreements (EBRD, Soros Fund for Economic Development, Deutsche Investitions- und Entwicklungsgesellschaft, and Triodos Bank). It specializes in micro The fifth category is a financial one. There are several foreign institutions that pro- and small credits, a market niche which is still quite open in NNO.115 vide loans to Nizhnii Novgorod enterprises: – Opportunity International (funded by USAID, FINKA Fund, and Swiss- – The Westdeutsche Landesbank became the first foreign bank to open its contact) issues loans to small businesses.116 representative office in Nizhnii Novgorod in 1995. – The Deutsche Bank also works in the NNO financial market, giving priority to major export-oriented projects (with a volume of no less than International humanitarian projects DM5 million), and to projects involving the purchase of German equip- The sixth group of projects has a humanitarian background. The NNO adminis- 111 ment. tration became one of 30 regional governments to sign the Protocol on Coopera- – EBRD funds smaller investments in local companies through the Small tion with the Soros Foundation in 1997. Since then, the Soros Foundation has Enterprise Equity Fund (SEEF). Seventeen NNO enterprises have profited invested about US$3.5 million in regional projects related to culture, education, from SEEF-sponsored projects. EBRD also has investment agreements and health care. The NNO administration, first among the regional governments, with major health care enterprises like Nizhfarm and Narodnaia Apteka. signed an additional attachment to the Protocol in 2000 that stipulates joint efforts Thanks to SEEF, new business practices have been introduced (flexible in socially sensitive areas. Among the new projects are “Hot Spots” (social serv- pricing, sales and promotion system, etc.). Only those banks working ices for former participants in armed conflicts), “Small Towns”, “Cultural within EBRD programs offer loan guarantees and credits for as long as Tourism”, as well as projects aimed at upgrading the penitentiary system in three years. NNO, and developing indigenous wooden arts. Of special importance are the cost-sharing projects that focus on expanding access to the Internet for colleges – The Swisscontact fund works with a number of regional partners in mar- and rural schools.117 keting, business consulting, and developing private entrepreneurship. Swisscontact, through its cooperation with the NBD Bank, assists small The NNO administration is not the only partner of the Open Society Insti- and medium-sized enterprises in lowering the risks involved in exchange tute (OSI) in the region, however. Former governor Nemtsov has initiated six rate while getting credits. The efficacy of this assistance is questionable, additional programs with OSI in his capacity as the president of the National however, as the NBD Bank, one of the largest partners of Swisscontact Foundation for Regional Policy. These include: “Internet for Schools, Hospitals since 1996,112 received bottom marks in the financial rating of the Thom- and Museums”, “Pushkin Library” (purchase of literature for public libraries in son Financial Bank Watch in three categories (short-term/local currency, several districts of CNN), “Electronic Journals” (subscription to electronic jour- senior debt, and intra-country issuer) in 2000.113 nals for libraries), “Nizhnii Without Drugs” (including advertising of a healthy way of life, assistance to law enforcement agencies, telephone help line, etc.), – The ISCRA Project (Investment Support Centers in Russia) of Great “School Debates”, and “Developing Independent Media in the Region”.118 Britain started its operations in the Nizhnii Novgorod market in Septem- ber 2000.114 In 2000 the Volga-Viatka Association of Journalists and the Open Society Institute created the Legal Press Club to facilitate media coverage of conflicts – The KMB-Bank (former Russian Bank for Project Crediting) opened its involving regional law enforcement agencies.119 Nizhnii Novgorod office in October 2000. This is the first local branch of the Moscow-based bank that is completely owned by foreign capital In the educational field a number of other success stories regarding international cooperation can be mentioned. In 1995 the Russian-French University was

110 Nizhegorodskie novosti, July 26, 2000. 111 See Foreign Investment Promotion Center under the Ministry of Economy of the Russian Fe- deration (http://www.fipc.ru/fipc/vestnik/glavy/June_July_august/Fourth.html). 115 Kurs, no. 42 (405), October 2000, p. 7. 112 “Kontrakt so SWISSCONTACT” (Contract with Swisscontact). Nizhegorodskii predprinimatel’, no. 3, 2000. 116 Shcherbo, Galina. Krupnyi kapital zametil melkii biznes (Big Capital Turned Its Eye on Small Business). Birzha plius finansy, no. 42, October 26, 2000, p. 3. 113 Beketov, Dmitrii. “NBD Bank vyletaet iz vysshei ligi” (NBD Bank is Dropped From the First Division). Monitor, no. 24, June 10, 2000. 117 http://www.regions.ru/news/228354.html. 114 Shcherbo, Galina. “Proekt ISCRA v Nizhnem” (ISCRA Project in Nizhnii Novgorod). Birzha 118 http://www.regions.ru/news/228375.html. plius finansy, no. 38, September 28, 2000, p. 2. 119 http://www.regions.ru/news/210510.html. 42 Andrei S. Makarychev The Region and the World 43

established as a joint institution, administered by the Nizhnii Novgorod Linguis- Expert assessment of international cooperation tic University, the Lobachevskii State University, and several French institu- The results of a survey aimed at finding out experts’ assessments of the progress tions.120 The Nizhnii Novgorod Medical Academy is the leader among NNO institutions of higher education in terms of teaching foreign students. It hosts 150 achieved by the Nizhnii Novgord region in the main areas related to foreign rela- foreign students (about 40% of the total number of foreign students in NNO), tions provide a good addition to the analysis given above. The data obtained is mostly coming from Morocco, Tunisia, Turkey, India, Nepal, Peru, Ethiopia, summarized in the following table: Columbia, and Saudi Arabia.121 The UNESCO Center was established in Nizhnii Novgorod in 1994. It deals mainly with arts, culture, libraries, and gender Local experts: Foreign Experts: studies.122 1 Humanitarian partnership (in Humanitarian partnership (in Through the World Learning Program, USAID sponsored the Sluzhenie science, education, culture, science, education, culture, sports, Association, which became one of the leaders of the third sector non-commercial sports, etc.) etc.) institutions in NNO by the end of 1990s, and even expanded to some adjacent regions. Sluzhenie was one of organizers of the foreign volunteers’ mission in 2 Twinning relations with Cooperation with foreign NGOs NNO to rebuild the famous Makarievskii monastery. specific foreign territorial units

The local Rotary Club was established in the mid-90s. The Christian College 3 Development of information Legislation stimulating foreign Coalition, an association of high schools from the US and Canada, sponsors the technologies relations children’s shelter in the CNN, exploring the possibilities of these children being adopted by North American families.123 The Swiss Tropical Institute provides 4 Establishing joint ventures Securities of market operations, hospitals in NNO with equipment for child therapy and maternity care. investments and credits 5 Cooperation with foreign Establishing joint ventures NGOs

6 Securities of market operations, Infrastructure for tourism investments and credits

7 Legislation stimulating foreign Development of information relations technologies

8 Military conversion Military conversion

9 Infrastructure for tourism Twinning relations with specific foreign territorial units

What we see here is that both local and foreign experts give highest marks to those spheres that are relatively autonomous from the regional officialdom. This is a good sign, indicating that there is a huge potential for diplomacy amongst the population, and that the grass-roots civil society has its say in globalization. The fact that foreign experts gave better appraisals than the local experts to legislation tied to foreign relations and tourism facilities might be related to the fact that the Nizhnii Novgorod region performs better in those areas compared to 120 http://www.regions.ru/news/255518.html. other regions. 121 http://www.regions.ru/news/203380.html. 122 http://www.regions.ru/news/199618.html. In summary, there are numerous agents of globalization in the region, each 123 http://www.regions.ru/news/200173.html. having its own resources and strategies. These actors interact and communicate 44 Andrei S. Makarychev

closely with each other. Their international projects are not isolated; rather they complement each other. Private investments are unthinkable without financial services, while industrial projects are incorporated into cooperation agreements between the regions, or between international programs of financial or technical assistance.

Relations with the federal center chapter 3

In analyzing the different institutions involved in the region’s international integration, it is important to keep an eye on the institutions at the federal level as well. The federal center is becoming an increasingly important factor in shaping the region’s foreign contacts, especially after Putin’s administrative reform of May 2000.

3.1. Federal institutions in the region As a huge and economically important region, NNO has always been a home to numerous administrative bodies whose powers spread far beyond the oblast’s borders. Seventeen such institutions were counted in the beginning of 2000, including the Gorkii Railway, the Volga River Administration, the Regional Anti- Crime Board for the Volga-Vyatka region, a branch of the Federal Commission on Securities, the Volga-Vyatka Board of the Ministry of Mass Media, and the Volga- Vyatka Transportation Board of the Interior Ministry. There are a number of federal institutions in NNO dealing with foreign and security issues. A local branch of the Foreign Ministry was established in 1992. Its area of responsibility also covers the Republic of Mordovia and Kirov Oblast. The local Foreign Ministry office is in charge of visa support and assisting the tourist companies. It also helps local enterprises to check foreign partners, provides information on legal expertise of local laws dealing with foreign relations, and organizes visits of foreign diplomats to the region. Nizhnii Novgorod is home to the Volga Customs Office, which has the territories of fifteen neighboring subjects of the federation under its jurisdiction.124

124 http://www.regions.ru/news/245875.html. 46 Andrei S. Makarychev The Region and the World 47

The area of responsibility of the Volga Customs Office includes about 2’000 kilo- – Bargaining with specific ministries. Kstovo Mayor Viacheslav Boliak, for meters of border with Kazakhstan.125 Among the most frequently detected goods example, suggested that the Ministry of Defense might contract with the that are illegally brought into the region are spare parts for technical equipment, NORSI oil refinery in oil reprocessing for defense-related needs. shoes, meat, and stationery.126 – Lobbying certain financial decisions. It was, for example, the Russian The benefits of having such an important institution in the region are multi- Ministry of Economics that guaranteed tax privileges for Fiat’s participa- ple. First, with the assistance of the NNO administration, the Volga Customs tion in the Nizhegorod Motors project. Similarly, in the fall of 1999, direc- Office has lobbied the financial interests of major exporters from NNO in the State tors of the NNO gas industry, along with their colleagues from Pskov, Customs Committee in Moscow.127 Second, the Volga Customs Office with its Murmansk, Arkhangelsk, and Kaliningrad oblasts, formally appealed to 3’000 employees brings new jobs to Nizhnii Novgorod.128 New actors, such as the federal government for the exportation of liquid gas to be limited. customs brokers, have recently appeared in the regional labor market.129 Third, This request was made because the much higher international prices due to the Volga Customs, many violations of foreign economic operations have leave Russian consumers with no gas supply.131 Ivan Skliarov is trying to been revealed, including: breaking accounting rules, lack of certified equipment, convince the federal government to allow the use of a part of the storage of unrelated merchandise, releasing imported items prior to finalizing Lufthansa ticket taxes to upgrade the Strigino airport. customs procedures, and export fraud. As is the case all across Russia, the region’s relations with the federal center At the same time, the Volga Customs policy of severing control over the for- are not free of conflict. On several occasions, governor Skliarov has interfered in eign economic operations of major regional enterprises might also be a source of the sphere of federal competencies, issuing decrees that introduced additional conflict. Thus, Customs responded with tough measures against GAZ and Gorkii fees for passport and visa authorities located in NNO, restricting the conditions Railroad when they failed to pay for cargo storage facilities on time.130 of foreign citizens’ registration and making HIV tests compulsory for certain groups of residents.132 The NNO administration has signed treaties on cooperation with a number of federal institutions regulating the exportation of arms and military equipment. In the fall of 1999, when the NNO administration was unable to pay its debts Among these are Russian Technologies, Promexport, and Rosvooruzhenie. Nizh- in connection with the European bonds, a discussion began on the role of the fed- nii Novgorod is home to the regional office of the Ministry of Foreign Affairs, one eral government in the case of foreign creditors undertaking any legal actions. At of twenty-five offices all across the country. the center of the discussion was the issue of sharing powers and responsibilities between the two levels of government. One argument was that, according to Instruments for influencing the federal policy in the areas of foreign trade, international law, if a subnational unit was operating within its competencies, the commerce, and finances include: responsibilities for its actions should be attributed to the state as a whole. Accord- – Legal procedures. The NNO Legislative Assembly submitted amend- ing to the decree On the Procedure of Issuing External Loans by Executive Bodies ments to the federal law On Military and Technical Cooperation Between of the Subjects of the Federation Issue in 1998, the federal center does in fact bear the Russian Federation and Foreign Countries in 1998, hoping to increase responsibility for the financial dealings of the regions. the number of NNO arms producers licensed to secure autonomous The second, and very controversial argument was that the Civic Code of the access to international markets. Russian Federation strips the federal center of any financial responsibility for the subjects of the federation, while the latter are not responsible for obligations taken on by the central government. The third point was that obtaining foreign credits falls within the joint competencies of the federal and regional governments, while 125 “Novye granitsy tamozhennogo regiona” (New Borders of the Customs Area). Zakon. Financy. Nalogi, no. 28, July 11, 2000. the securing of these credits with insurance funds is a function of the regional 126 Delo, October 6-13, 2000, p. 3. administrators alone. All these arguments were based on specific and controver- 127 “Eksport – pokazatel’ sostoianiia ekonomiki” (Export is an Indicator of the State of Economy). sial interpretations of Russian legislation. Nizhegorodskii predprinimatel’, no. 2, 1998. 128 “Tamozhenniki vstrechaiut svoi prazdnik” (Customs Officers Celebrate Their Professional Day). Zakon. Finansy. Nalogi, no. 34 (56), October 26, 1999. 129 Almazov, Georgii. “Broker tamozhne tovarishch” (Broker is a Good Fellow for Customs Office). Nizhegorodsky predprinimatel’, no. 1, 1999. 130 Tsygankov, Alexei. “Demokraticheskii tsentralizm na tamozhne” (Democratic Centralism in 131 “Gazovyi krizis” (Gas Crisis). Zakon. Finansy. Nalogi, no. 34 (56), October 26, 1999. the Customs). Zakon. Finansy. Nalogi, no. 45 (111), November 9, 2000, pp. 3, 13. 132 Okmianskii, Vladimir. Op. cit. 48 Andrei S. Makarychev The Region and the World 49

Expert survey: perceptions of foreign policy priorities experts. This reflects the strong skepticism in many regions towards the perspective of the integration of the two countries (which has already been announced). The results of a survey among experts conducted for this study provide interest- Similarly, the Baltic republics were given lower marks by the regional experts, ing data concerning the perceptual gaps existing between the region and the fed- which reveals that regions like NNO are less interested than the central govern- eral center. Local experts were asked to place the countries mentioned in the ment in speculating about Russian minorities in Latvia, Lithuania, and Estonia. Foreign Policy Concept of the Russian Federation (signed by Putin in the spring The lower position of the Balkan countries within the local experts’ priorities is a of 2000) in accordance with their importance for the Nizhnii Novgorod region. good indication that geopolitical considerations and national-patriotic rhetoric are less popular in the region than in the federal center. The same is true with Ministry of Foreign Affairs priorities Regional priorities regard to Afghanistan, where the regional experts are less concerned about the geopolitical consequences of the civil war in that country. The Caspian Seas coun- 1 CIS countries CIS countries tries were also considered less important by the regional experts. This might be 2 Belarus EU explained by the relatively good oil supply in NNO.

3 Caspian Sea countries Central & Eastern Europe By the same token, regional experts raised the status of EU countries, reflect- ing the importance of Germany, Italy, France, Great Britain, the Netherlands, and 4 EU China other West European countries for the NNO economy. Countries of Central and 5 Central & Eastern Europe Caspian Sea countries Eastern Europe also received higher marks. This might express the regional experts’ disapproval of the central government’s inability to build up relations 6 Baltic republics Belarus based on new principles and norms with former allies of the Soviet Union. China 7 Balkan USA emerged as a more attractive partner for the region, which might be an indication of the good opportunities for the export of arms and military equipment sales 8 USA India from NNO to China. The same logic can be applied to Iran, showing that in the 9 Asia Pacific region Asia Pacific region region people are less concerned with potential US economic and political sanctions. Latin American countries found a better place in the regional system of pri- 10 China Iran orities, due to good trade perspectives for GAZ in South America. 11 India Balkan 12 Japan Baltic republics 3.2. NNO as a part of the Volga Federal District

13 Iran Japan Putin’s administrative reform of May 2000 led to the creation of the Volga Federal District (VFD). Kirienko, who has a reputation as an intelligent and well-educated 14 North and South Korea North and South Korea political leader,133 was nominated as the presidential representative. Middle East and Persian Gulf 15 Afghanistan countries The VFD is second among seven federal districts in terms of its industrial Middle East and Persian Gulf output: 82% of the Russian car-building industry, 75% of the aviation industry, 16 Latin America countries and 71% of all oil and chemistry enterprises are located here. Kirienko’s policy is geared towards creating conditions for stronger economic coherence within the 17 Africa Africa VFD, and removing trade and commercial barriers among its fifteen regional enti- 18 Latin America Afghanistan ties. Integration is not an easy task since the divergences in the regions’ economic strategies are quite substantial.

This table tells us that while federal and regional (according to the experts’ Nizhnii Novgorod is a political leader within the VFD. There are, however, perspectives) priorities coincide in certain areas (CIS, USA, Asia Pacific Basin several regional centers that claim economic and financial leadership in the dis- countries, Japan, Korean peninsula, Middle East & Persian Gulf, and Africa), trict. Thus, Vladimir Volkov, head of the government of Mordovia, referred to there are nevertheless significant discrepancies. Belarus, for example, is among the top priorities of the Kremlin, but was placed only sixth by the regional 133 Pole mnenii. Issue 06, November 2000. Moscow: Public Opinion Foundation, pp.71-72. 50 Andrei S. Makarychev The Region and the World 51

Putin’s enthusiastic assessments of the economic achievements of Perm Oblast Putin’s reform brought more centralization to the region’s relationship with and the Republic of Mordovia.134 Other regions also have high expectations. the federal government. In August 2000, for example, the Regulations of Account- Alexander Vorotnikov, Minister of Economics of the Chuvash Republic, for exam- ing the Participants of Foreign Economic Activity were enacted. Before that there ple, anticipates that the budgeting system of his Republic will be introduced in all were no single rules, and each subject of the federation was able to register for- of Russia by 2002.135 Perm Oblast was praised by Kirienko as a key region due to eign economic and financial transaction according to its own rules.139 its transportation infrastructure and its proximity to the Urals Federal District.136 There are four centers of the oil processing industry within the VFD: Tatarstan, Mass migration Bashkortostan, Samara, and Nizhnii Novgorod. Their spheres of activities are closely intermingled, thereby fuelling competition between neighboring regions. Mass migration is one of the most important factors affecting socio-economic and political processes in the VFD. There are two main sources of migration to the Since the representative of the president has to tackle a variety of issues that VFD: ethnic conflicts and Russia’s vicinity and economic considerations. were formerly the prerogative of the governor, the political relations between Kirienko and Skliarov are not easy. There is still no strict line of demarcation In his capacity as presidential representative, Kirienko formed the Commis- between their responsibilities. According to Kirienko’s press secretary, the gover- sion on Spatial Development. He has also established formal relations with the nor should be in charge of the “everyday life of the citizens, while the represen- Assembly of Russia’s People and Committee on Nationalities of the State Duma. tative of the president is responsible for the future of the district”.137 The Center for Strategic Studies, created by Kirienko, expressed its interest in cooperation with the Center for Conflict Studies & Prevention, Institute of Eth- Basic elements of Kirienko’s views on the current state and future of the nology & Anthropology (Moscow) with the perspective of arranging regular VFD are: monitoring of ethnic issues within the framework of the VFD. – subjects of the federations are not subjects of international law; Migration poses a number of challenges. First of all, refugees are a strain on – federal districts are not autonomous political institutions, but only instru- the local budget and the social infrastructure. The total number of refugees in the ments of the president. Presidential representatives, in his view, are not VFD amounts to almost 210’000. Second, refugees have often formed a social basis autonomous political figures; for crime, and have been involved in criminal groups (sometimes inter-regional ones). – spatial development policy of the federal district should be based upon networks of different institutions, and actors and not limited to specific administrative borders; Border issues – agents of change (economic, financial, and social) in the regions are not Rearranging the border with Kazakhstan poses another major challenge for bound to any restricted territorial area; they operate in a global environ- Kirienko. Border-related issues are closely intertwined with geopolitical, geo-eco- ment.138 nomic, and security problems. A large section of Russia’s border (2’300 km) with Kazakhstan goes through the VFD. The specific challenge of the VFD external Putin’s reform has changed the balance of power between the governors and border is that it simultaneously plays two roles – communicative and defensive. the federal center in favor of the latter. The federal authorities – through the On the one hand, according to new the Foreign Policy Doctrine of the Russian administration of each of the seven newly created federal districts – are currently Federation, the border with Kazakhstan (a CIS member) is supposed to function in a position to disregard the regional chief executive in appointing the heads of as a tool for the further integration of both countries. the federal institutions in the region. On the other hand, the areas bordering with Kazakhstan face the problems of contraband goods, poaching, and illegal migration. With the creation of a new administrative district, the Volga region has become a border area, and has thus inherited the problems related to cross-border crime, including drug trafficking 134 http://www.regions.ru/news/index.html, September 7, 2000. 135 http://www.infonet.nnov.ru, September 7, 2000. 136 http://www.cerra.perm.ru/gubvesti/sve/5a.html. 137 http://www.pfo.ru/main/?id=1277. 138 Kirienko, Sergei. “My ne iavliaemsia samostoiatel’nymi igrokami” (We Are not Independent Players). Nezavasimaia gazeta, no. 202 (2264), October 25, 2000, pp. 1, 8. 139 Birzha plius finansy, no. 43, November 2, 2000, p. 6. 52 Andrei S. Makarychev The Region and the World 53

from Kazakhstan.140 Valentin Stepankov, Kirienko’s deputy on law enforcement jingoist feelings among the Cossacks, as well as numerous complaints issues, has said explicitly that the non-protected border is the cause of illegal from the local population, accusing the Cossacks of extortion. migration and religious extremism. In the meanwhile, because of its weak border protection, Russia loses raw materials, food, cars, and other goods.141 Transportation

Putin’s decree No. 705 urged the Federal Border Service to immediately Kirienko is a strong proponent of the “North – South” transport corridor in order tighten its control over the border with Kazakhstan. Ramil Mullaiamov, chief of to drastically increase the transit cargo volumes (from 8’000 containers to 100’000 the South Eastern regional department of the Federal Border Service, has said that in 2005), and to provide the state budget with an additional US$1 billion. Nizhnii this agency had experimented with exchanging regular border troops for non- Novgorod, Saratov and Orenburg oblasts are among the regions that are most 142 military units. The experiment, however, failed to bring positive results. interested in this undertaking. Kirienko has addressed a number of border problems: District-level information policy is also important. Kirienko has announced – Lack of federal resources for adequately protecting the border. In prac- his intention to form a common information space in the VFD. In particular, he tice, it is the regional administrations that provide the frontier troops with launched an Internet-based contest among young and mid-career professionals housing, transportation, energy supply, and building or overhauling who might be interested in working within this apparatus. Another important ini- frontier posts. Officers have to bargain with the regional or municipal tiative was the Association of Investment Programs’ Trans-Volga Perspective. Its authorities themselves, and ask them for assistance. newly appointed executive director, Sergei Dobroserdov, has said that this is the first step in the creation of an interregional information network within the VFD. – A substantial increase in the geographical area to be covered by the Volga The Trans-Volga Perspective will include information projects such as “Invest- Customs Department due to the inclusion of Orenburg Oblast in the VFD. ment Passport of VFD”, “Market for Investment Projects”, and “Capital Market”. According to Vladimir Yegorov, the Volga Customs director, one of the Since more than 70 long-term investment programs are being targeted in the VFD problems is that the customs offices are located far away from the border- that are funded by international donors, the problem of their coordination is very crossing stations. The second troubling issue he addressed is the practice acute. of recruiting customs officers from among the local population, which increases the likelihood of corruption. Kirienko is also known for his commitment to support the networking of non-governmental organizations fostering the horizontal integration of local – Weak coordination between the customs service, border guards, and the communities, and specializing in culture, arts, ecology, social partnership, youth railway authorities in preventing smuggling and other illegal actions. policy, sports, and gender. These practices seem to correlate with the global net- – Activities of Cossack units in border territories, claiming to play a more working concepts being developed and widely implemented in the West in the significant role in defending the border. This is a highly controversial last decades. issue. On one hand, the whole set of border-related matters can’t be solved without involving the local population, including the Cossacks as the most organized force. The Cossacks have their own system of inspecting the border (inherited from past centuries), which could complement other security measures (barbed wire, electronic alarm system, etc.). On the other hand, however, the Cossacks (as well as other self-ruled groups), by law, are not supposed to participate in protecting the state border. Among the factors that complicate the interaction between the Cossack units and the frontier guards are the widespread nationalist and

140 Izvestiia, 20 September 2000, p. 2. 141 http://www.pfo.ru/main/news.phtml?id=1310. 142 NTR News Service, September 22, 2000. Problems of international cooperation chapter 4 at the regional level

The NNO administration has been severely criticized in the sphere of international contacts. Nemtsov, for example, remarked in February 2000 that US$2 million worth of foreign investments – which constitutes only 0,38% of all foreign funds invested in Russia – was a “shame” for the regional administration. Although the Department of Foreign Economic Contacts of the NNO administration anticipates between US$90-100 million in investments in the year 2000, in financial terms, exports of NNO products (paper, chemical material, etc.) exceed imports. There are still multiple reasons for criticism.

Problem no. 1

The first set of problems is due to lack of adjustment of local and foreign partners; they are still learning to work together. The Luxembourg-based Millicom company, for example, as one of the founders of the PSSR telecommunication group, raised the issue of quality standards in the mobile telephone business in NNO, since PSSR profits in this region went down. Management culture is also an issue. Dutch consultants from Tender Mer- cies and Market Entry companies working in Nizhnii Novgorod have noticed that local directors tend to mistrust the advice of experts.143 At the same time, local legal experts lack knowledge in specialized areas, which undermines their credibility.144

143 Norskii, Valerii. “Era Spetsializatsii” (Era of Specialization). Kurs, September 26, 2000, p. 12. 144 Il’ina, Mariia. “Pravo: Mezhdunarodnyi aspekt” (Law: International Aspect). Birzha, no. 39, October 5, 2000, p. 10. 56 Andrei S. Makarychev The Region and the World 57

Poor management leads to low standards of quality. According to the gen- – Lack of political checks and balances on the regional level, resulting in a eral director of the certification center “Prioritet”, Vadim Lapidus, just a few NNO monopolization of the foreign economic policy by the executive authori- enterprises are consistently investing in raising their quality standards to the ties, and in their disregard of independent expertise. international level. Among these are Nizhfarm, the Bor Glass Factory, and – Weak political influence of the financial and economic elites.146 Instrum-Rand. All of these are small and middle-sized entities. In contrast, upgrading the standards of quality in huge plants like GAZ is a problem.145 In addition, the regional political leaders are much more likely to sponsor regional businesses than to secure the economic interests of those actors who are The gap in management practices between local and foreign partners is associated with international cooperation. The local media describes Skliarov’s especially wide in the agricultural sphere. This makes it hard to find organiza- attitudes to external investors in terms of Colombian diplomacy (“Want to tions in the regions able to work adequately with foreign investments. This was become an investor? Make a gift to a high-ranking official”147). the case with the Dutch company Van de Bilt en Vlas, which spent a lot of time trying to find appropriate cooperation partners within the framework of the PSO technical assistance program. Problem no. 2 Deficiency in management was a problem in the case of the Eurobonds The second problem deals with the marketing and sales of merchandise produced issued in 1997. The bonds carried a Ba2 rating from Moody’s and a BB rating from by NNO enterprises in cooperation with foreign partners. The trouble here is that Standard & Poor’s, the highest possible under the sovereignty ceiling under the use of foreign technologies and materials raises the production costs (espe- which the Russian Federation floated its first Eurobonds in 1996. Both Nemtsov cially after the August 1998 financial crisis in Russia). The Pavlovo bus plant (as and Skliarov believed that there were many reliable commercial projects to be one of the beneficiaries of the European bonds), for example, has experienced dra- funded with the European loan. matic difficulties in selling buses assembled with Volvo parts. In 1998, however, the Chamber for Accounting and Control of NNO discov- Similarly, Nizhegorod Motors has had to raise the share of assembly parts ered that the process of distributing the credit was inadequate and inefficient. for new cars to be produced jointly with Fiat by up to 70%. This, however, only One third of the loan was spent on social programs with no commercial justifica- lowered the price by US$6’000, instead of, as initially planned, by US$17’000.148 tion. In June 1998, Moody’s and Standard & Poor’s reduced the international Relatively low prices have already attributed to GAZ cars the informal nickname credit rating of NNO to B1 and B+ correspondingly. This was partly explained by “the death of Volkswagen”. Nonetheless, the problems of GAZ are multiple: GAZ the undue usage of the loan. The problems became even more evident in the still owes US$65 million to the EBRD, the dealers’ network is both corrupt and spring of 1999, since the NNO administration failed to reimburse the third part of insolvent, and the license for duty-free customs storage has been revoked as a the loan payments in time. In October 1999, with the deadline for the fourth part retaliation for the huge (US$12 million and RUR80 million) debts for the customs approaching, the NNO administration had to recognize that it was unable to pay operations. Some predict the “inevitable financial and technological collapse” of under the initial conditions, and solicited the London Club to consider a restruc- GAZ, and its subsequent closure.149 turing of the region’s debt. NNO was immediately deprived of its international To lower expenditures and production costs, some enterprises with foreign credit rating, which became the major failure of the regional administration in for- capital will have to reconsider their personnel policy. So far there have not been eign economic affairs. After lengthy negotiations, the debt was finally restruc- any scale lockouts or labor cuts, yet the possibility of unemployment is discussed tured, yet the whole story highlighted major deficiencies in the region’s in Nizhnii Novgorod.150 international strategy: – Little administrative experience in dealing with global financial institutions. 146 Dakhin, Andrei. “Strukturnye izmenenia administrativnoi i finansovo-ekonomicheskoi elity – A naïve belief, inherited from Nemtsov’s governorship, in the exceptional regiona, 1998-1999” (Structural Changes in Administrative, Financial and Economic Elites of international attractiveness of the region. the Region, 1998-1999). Konstitutsionnoe pravo: vostochno-evropeiskoe obozrenie, no. 1, 2000. 147 MK v Nizhnem Novgorode, April 27 – May 11, 2000, p. 2. – Uncertain political credentials of Skliarov, who was eager to secure influ- 148 http://www.regions.ru/news/245893.html. ence through channeling funds for social (non-commercial) projects. 149 Khromov, Il’ia. “Est’ li perspektivy u GAZa?” (Are There Any Perspectives for GAZ?). Vek, no. 39 (404), 2000, p. 6. 150 Anisimov, Sergei. “Dai grosh – tak budesh khorosh” (Give a Penny, and You’ll Be a Nice Pal). 145 Birzha, no. 44, November 9, 2000, p. 7. Gorod i gorozhane, no. 20, May 18, 2000, p. 7. 58 Andrei S. Makarychev The Region and the World 59

Dutch scholar André Mommen notes the lack of confidence that foreign site. The head of the Russian Orthodox Church in NNO, as well as various nation- investors have in Russian production facilities and outlets, and finds the tempo of alist groups, supported the governor’s demands, and the issue received high pro- modernization of the Nizhnii Novgorod industrial enterprises inadequate. In his file coverage in the local media. Foreign investors were dissatisfied, and insisted view, dragging on with launching the new GAZ – Fiat joint venture is a problem, on continuing the construction under the initially negotiated conditions, threat- because in the meantime Western firms are already developing new models with ening to take the issue to the courts. Finally, the governor failed to prove that lower emission norms, lower fuel consumption, etc. These cars will compete in force majeure might be applicable to the issue. The contract, however, was termi- price, not in quality. This proves that Russian regions trusting in these kind of nated, and the foreign investors left the region. outlets will again experience stormy weather.151

The problems of GAZ provide a good illustration of the close interdepend- Problem no. 4 ence of domestic and international issues. To compete internationally, GAZ needs The fourth – and related – problem regards the foreign policy perceptions of the restructuring. The profitability of GAZ amounts to about 4%, which in interna- regional elites. Attitudes towards the entire set of globalization issues are quite 152 tional terms is a disastrous performance. It has been estimated that for the sake diverse among policy makers in NNO. On the one hand, NNO has already posi- 153 of efficiency, 20-30’000 out of 110’000 GAZ employees need to be dismissed. tioned itself (mainly due to Nemtsov’s governorship) as an international actor. In GAZ is also financially in charge of a huge housing area and supporting facilities, addition, the economic rationale pushes regional decision-makers to adjust to the which have to be transferred to the municipal budget. Both problems have obvi- challenges of globalization by searching for foreign investments, offering new ous social implications. opportunities for international businesses, and advertising the region’s possibili- Another problem is the low standard in the quality of local production. GAZ ties internationally. On the other hand, as local policy analyst Ivan Yudintsev sug- minibuses, for example, lack emergency exits and a reinforced frame between the gests, NNO “is still surrounded by a kind of ideological barrier, a sort of floor and the roof. This is a serious shortcoming in the international market.154 As psychological iron curtain”.156 Some foreign visitors concede that NNO “looks a result, GAZ is losing ground in competition and market. GAZ’s failure to more isolated from the outside world than Moscow or St Petersburg”.157 become a strong international actor has led to the increasing expansion in the A number of reasons might explain these challenges. First, in the public NNO car-building market of the major Russian companies Sibal, Alfa, and speeches of NNO high administrators one can easily find many inappropriate, 155 Severstal. outdated, and sometimes foggy perceptions of the realities of international relations. In vice governor Alexander Batyrev’s words, for example, “Lithuania is Problem no. 3 leaning towards Russia, and is ready to come back to Russia”. Asked about his assessment of the electoral success of the Freedom Party in Austria in February The third problem lies in the sphere of the politicization of financial and economic 2000, he interpreted it as an attempt to “play the Russian card”, and to “distance projects. This was the case in the fall of 1999 when Skliarov, trying to avoid accu- Austria from Russia”.158 sations of mismanaging the Eurobonds, presented the issue as a political one, blaming his predecessor Nemtsov and his colleague (also of Nizhnii Novgorod Second, communist conservatism, nationalist feelings, and reservations origin), Kirienko, who was the prime minister at the time of the August 1998 about the West are deeply rooted in the mentality of certain groups of the regional financial crash. elites. This is how State Duma deputy and former director of the Nizhnii Nov- gorod Chamber of Trade & Commerce, Gennadii Khodyrev, describes his atti- Another, and even more telling example, was Skliarov’s decision to block tudes vis-à-vis the US: “Yes, we are much more clever than they are. We know for the construction of a four-star hotel in the Nizhnii Novgorod downtown area, ourselves what to do. Americans are miserable. They have a couple of bucks arguing that archaeologists had discovered remnants of medieval tombs at this instead of eyes, and a piece of gold instead of a heart. What is there to discuss together?”159 Another member of the State Duma from Nizhnii Novgorod, Niko- lai Benediktov, is known for his extreme anti-Semitism and negative attitude with 151 Author’s interview with Andre Mommen, May 3, 2000. 152 Gorod i gorozhane, no. 35, August 31, 2000, p. 4. 153 Nizhegorodskie tovary, no. 3, 2000, p. 7. 156 Monitor, no. 15 (190), April 24-30, 2000, p. 10. 154 Musatov, Andrei. “City Puts Marshrutki Under the Gun.” The St. Petersburg Times, October 157 Vse 24 chasa, no. 17 (37), April 25 – May 3, 2000, p. 2. 27, 2000, p. 5. 158 MK v Nizhnem Novgorode, April 24 – May 11, 2000, p. 12. 155 Vedomosti, October 25, 2000, p. A2. 159 Delo, December 10-16, 1999, p. 5. 60 Andrei S. Makarychev The Region and the World 61

regard to the International Monetary Fund (IMF) and foreign NGOs working in Russian, while Kirienko has some troublesome uncertainties about his religion Russia. and ethnic origin” (an allusion to the Jewish roots of the former prime minister). Similarly, Torin also declared that in Nizhnii Novgorod “the bankers seem to be Some NNO representatives in the State Duma stick to a clear-cut nationalis- especially well recruited from a certain Middle Eastern nationality”.164 tic vision of foreign policy issues. Thus, three out of eight members of the lower chamber representing NNO voted against the SALT-2 ratification in April 2000, Multiple misperceptions are also apparent among the directors of state- labeling the treaty a “tragic mistake” that would turn Russia into a “country of owned enterprises with regard to the West. According to one of Russia’s major wild pacifists”.160 businessmen, Kakha Bendukidze, “many industrialists here naively believe that they are going to compete with each other. Nowadays, in the era of proliferation Nationalist components in the regional political discourse were boosted of global companies, it is amusing to listen to people speak about the exception- during the war in Chechnya and Russia’s isolation from Europe. Vadim Bulavi- ality of a certain territory. I am always told here in Nizhnii that the oblast admin- nov, a member of the Russian delegation at the PACE Session in Strasbourg, istration needs to rule and control everything, but this is unreasonable”.165 where Russia was accused of excessive application of military force and its mem- bership in PACE was frozen, explained this reaction of the West as a “silent The same idea was shared by Russian economist Igor Lipsit, lecturing in revenge” on former USSR satellites, and an “interference in our domestic affairs”. Nizhnii Novgorod. In his words, 60-65% of the directors of state-owned plants Similar assessments dominated in the NNO media covering the conciliatory posi- and factories treat investments as mere funding or as a credit. According to him, tion towards Chechnya taken by the Nizhnii Novgorod Human Rights Associa- “These directors are eager to get these funds without changing the structure of the tion and its attempts to form the Society of Russian-Chechen Friendship in NNO. property, since they are reluctant to share their powers within their enterprises. Local human rights activists were accused of working mainly for foreign media This is the source of all conflicts emerging immediately when the investors try to attention.161 participate in managing the property”.166

It is not hard to find anti-Western philippics in the regional mass media. For Suspicion towards foreign business became evident in June 2000 in the after- example, one notorious local journalist, Vadim Andriukhin, repeatedly questions math of the NTV Channel comments on increasing ecological problems in the intentions of international NGOs working in NNO, misrepresenting them as Dzerzhinsk, the second-largest city of NNO in terms of population, and the home “intelligence units” searching for classified information under the guise of a to major chemistry producers.167 The mayor of Dzerzhinsk, Sergei Trofimov, scholarly survey or a poll research.162 Some academic publications, including interpreted the negative TV coverage as the desire of foreign competitors to spoil ones from the Nizhnii Novgorod State University, which is paradoxically the the image of the city, and to block further investments in its chemical industry. regional resource center of the Soros Foundation, extensively reproduce negative The NNO administration has supported this interpretation, and denounced the images and suspicions in regard to the West.163 report as an “information attack” sponsored from abroad.168 The NNO media has also echoed this reasoning, accusing foreign countries of industrial espionage and The NNO governor, Ivan Skliarov, sticks to the same track himself. In his of stealing secrets from Dzerzhinsk enterprises. speech before the Second Congress of the Russian Regionalist Studies in Septem- ber 1999, he directly linked the autonomy of the local self-government to foreign influences, alluding that the concept of grass-roots democracy may be imported Problem no. 5 to Russia “with a purpose”. The fifth problem is crime. Some high-profile cases included the 1996 murder of Anti-semitic feelings can also be encountered in the Nizhnii Novgorod polit- the director of the Bor glass factory, Vladimir Maksimov, and the scandalous ical discourse. In May 2000, the media widely covered a statement made by arrest in 2000 of the president of the Nizhnii Novgorod Association of UNESCO Vladimir Torin, the press secretary of the NNO Legislative Assembly Chairman, in which he argued that “Governor Skliarov’s advantage is that he is ethnically 164 NTA, June 6, 2000. 165 Monitor, N 15 (190), April 24 – 30, 2000, p. 10. 166 Birzha plius financy, no. 18, May 11, 2000, p. 8. 160 Birzha, no. 16, April 27, 2000, p. 5. 167 Fedorov, Lev. “Teper’ vlastiam Dzerzhinska ne nuzhna dazhe polupravda” (Now 161 Monitor, no. 13 (188), April 10 – 16, 2000, p. 2. Dzerzhinsk Authorities Do Not Need Even Half-Truth). Ekologiia i Prava Cheloveka, no. 89, 162 Novoe Delo, April 28 – May 4, 2000, p. 5. June 7, 2000. 163 “Otnosheniia Rossiia – NATO v blizhaishei istoricheskoi perspective” (Russia – NATO Rela- 168 Filimonov, Sergei. “Voina v Nizhnem ili zachem zakazali Dzerzhinsk” (War in Nizhnii, or tions in Short Term Historical Perspective). Proceedings of International Scholarly Confer- Why Dzerzhinsk is Targeted), SMI. Ru World Wide Web site (http://www.smi.ru/top), June ence, Nizhnii Novgorod Lobachevskii University, 2000, pp. 56, 97. 18, 2000. 62 Andrei S. Makarychev The Region and the World 63

Clubs, Olga Chechulina. Andrei Kliment’ev, one of Nizhnii Novgorod’s business local counterparts, yet both groups recognize that this is not a top problem. It is tycoons with business interests in Norway, was jailed in 1998 for fraud and interesting that despite the much-debated “East-West” cultural gaps, the foreign extortion. The GAZ dealers’ network is also, according to law enforcement interviewees did not give much attention to this matter (locals experts take this reports of 1999-2000, highly criminalized. issue a little more seriously, but not significantly). Foreigners are more sensitive to the inadequacies of the Russian accounting practices, while the locals tend to The following survey data might well complement our findings given lower this issue in their list of priorities. At the same time, local experts believe above. Two groups of experts – local and international ones – were asked to range that barriers to Russian export in foreign countries count and matter, while the the significance of the main obstacles impeding foreign relations at the regional international respondents are more skeptical regarding this issue. Foreign experts level in Nizhnii Novgorod. The outcomes are presented in the table below. also turned out to be more tolerant towards the geopolitical ambitions of the central government, but more critical towards the state of regional transportation Local Experts Foreign Experts networks. Flawed legal base for foreign Flawed legal base for foreign 1 economic relations economic relations

2 Regional bureaucracy Regional bureaucracy

Scarce development of regional Inadequate accounting system in 3 information infrastructure Russia

Barriers to Russian export in 4 Crime and corruption in the region foreign countries Geopolitical ambitions of the Scarce development of regional 5 federal center information infrastructure

Crime and corruption in the Underdevelopment of transport 6 region facilities in the region

Inadequate accounting system in 7 Deficit of resources in the region Russia

Underdevelopment of transport Geopolitical ambitions of the 8 facilities in the region federal center

Cultural dissimilarities between Barriers to Russian export in 9 Russia and foreign nations foreign countries

“Fast buck” approach of foreign 10 Deficit of resources in the region companies operating in the region “Fast buck” approach of foreign Cultural dissimilarities between 11 companies operating in the Russia and foreign nations region

It is obvious from this table that the two groups were unanimous in draw- ing attention to the legal imperfections and the red-tape problem as major inhi- bitions for the successful globalization of the region. Foreign experts are more concerned with the deficit of resources for international operations than their Implications and scenarios chapter 5

The region faces both opportunities and hurdles as regards its international participation. The 1990s were the decade when the Nizhnii Novgorod region made its first steps on the way to becoming more integrated in the world. This process turned out to be much more lengthy and time-consuming than was initially expected, for which there may be both objective reasons (the general crisis of the Russian economy, lack of a globally oriented sector of the regional market) and subjective reasons (foreign policy misperceptions of the local elites, administrative inertia, and lack of skilled managers). International relations at the regional level are developed within a rather controversial, and not always internationally friendly framework. The foreign policy mentality of different elite groups is over- loaded with multiple stereotypes and myths that further complicate the international integration of the region. It has taken several years for the regional elites to comprehend that economic and financial projects being implemented regionally would easily become a part of the broader international geopolitical and geoeconomic processes. Thanks to international cooperation, NNO business professionals have started to learn some basic norms and rules relating to standards and quality of production, insurance procedures, and environmental protection, to name but a few issues. Foreign business institutions have become important financial and economic actors within the region, which proves how deeply they are involved in regional affairs. Problems around the conditions under which these actors can become politically important players in the region are still in question. The obligations that regional authorities must undertake before gaining access to international resources are still under consideration.169

169 Checkel, Jeffrey. “Rethinking the Role of International Institutions in Post-Soviet States”. Pro- gram on New Approaches to Russian Security Policy Memo Series, Memo no. 135, April 2000, p. 3. 66 Andrei S. Makarychev The Region and the World 67

The regional elites have just started to learn how to coordinate their foreign potential resource of the local alumni of numerous international exchange pro- activities with international developments. Modern geoeconomic approaches are grams and the Association of Foreign Residents in NNO is still underestimated, still rare among the basic resources of the region’s international openness. Inte- and needs to be recalled for the sake of bringing new expertise to the regional gration into the global markets is still not adequately articulated as a strategy in reforms. the region’s development, although all the prerequisites for such a breakthrough The road to globalization should not be explored exclusively by regional or are available. municipal administrators. To activate the involvement of wider social and professional layers in international exchanges and networks, it would be helpful if Implications for the West foreign governments insisted on including different non-governmental groups in the NNO delegations coming to various international forums (presentations, sem- Kirienko, as the most liberal and pro-democratic leader of all the heads of the fed- inars, exhibitions, etc.). This would contribute to the process of opening new eral districts, merits international support and special treatment. He is undoubt- international perspectives for local NGOs. edly committed to reforms aimed at creating a business-friendly environment in the VFD. Kirienko’s efforts to integrate the VFD regions into the business market Some possible alternative scenarios for the future development of NNO as a deserve all possible intellectual, technical, and organizational assistance. It is part of the VFD are represented in the table below. politically important to get positive feedback from the international community during the initial period of creating new institutional structures in the federal district. Issues such as spatial development, subnational integration, inter-ethnic Scenarios Implications for NNO International Implications relations, borders and security, and others could be debated and tackled together 1. Consolidation within the Politically, NNO is becoming The VFD strengthens its by ad-hoc task forces, made up of both local and international specialists. VFD the core region of the VFD, and international role which is maintains leadership in the oriented both to the West Most of the foreign business, financial, and commercial institutions operat- top-priority economic areas and to the East (Kazakh- ing in NNO face the problem of expanding their social horizons. It seems that (chemical industry, develop- stan, Caspian Sea coun- ment of communication tech- tries). The majority of the their sphere of interest is overwhelmingly circumscribed by rather narrow, pro- nologies, car-building, defense regions comprising the fessionally oriented circles of entrepreneurs, bankers, traders, etc. Unfortunately, production, etc.). In a long- district would have to there are too few examples of effective and thoughtful public relations and media term perspective, NNO might lower their international start competing with other cen- profiles. strategies implemented by foreign firms and companies in NNO. Their lack of ters of federal districts for po- publicity and clarity in articulating their strategic goals in the region worsens the litical influence in the federa- public perceptions and attitudes towards these foreign institutions, and encour- tion and for distribution of re- ages misperceptions of these institutions, such as their being exclusive clubs of sources among the districts. self-interest, elite-driven, and reluctant to make social commitments. Foreign 2. The VFD as a loose de- NNO as one of several gravita- Domestic competition be- centralized alliance of tional poles in the VFD com- tween the regions will be actors have to be more explicit about their possibilities, explaining how their different regions with petes with its neighbors (espe- complemented by a rivalry methods, resources, and tools are applicable to the region. This proactive PR strat- several competing regional cially Tatarstan, Samara and for foreign credits and in- egy might help in overcoming negative myths and stereotypes about globaliza- centers of influence Saratov oblasts) in transporta- vestments, as well as for tion, oil processing, and other international reputation tion in the region. Foreign journalists and policy analysts could visit NNO more areas. The VFD fails to turn frequently, and publicly discuss the issues of globalization amongst wider audi- into a unified political and eco- ences (students, teachers, artists, writers, party activists, social workers, NGO nomic actor. leaders, etc.). 3. Further centralization of The federal districts lose their The shape of foreign eco- Many of the international institutions in NNO do still not make use of their the political process in importance. NNO deals di- nomic relations of NNO Russia, and re-imposition rectly with the federal gov- will be basically decided in full potential and advantages. The local Soros Foundation office, the British of monolithic policy- ernment in solving the most Moscow. Council, the American Center in the Linguistic University, UNESCO-funded making (with possible re- pressing issues of budget, in- structures, and the Peace Corps branch, for example, could switch from merely siduals of some of the for- frastructure upgrade, energy mal federalist procedures) supplies, etc. being information units to becoming regional cultural and social institutions that

integrate different social and professional interests in various fields (education, environment, volunteering, gender issues, fundraising, campaigning, etc.) The 68 Andrei S. Makarychev The Region and the World 69

The first scenario could be called ideal since it guarantees faster and are feasible since individual enterprises belong to competing financial and indus- smoother NNO partnership with the world actors. Yet to become the leader of trial groups with rivaling interests. Authorities of VFD and NNO are willing to better consolidated VFD, NNO has to find solutions to several basic problems: mediate among them, yet it is still not evident that they have enough influence and resources to succeed. First, the political process in the region has to be rationalized. The first step has been made in spring 2001 with the creation of the regional government The correlation between economic conservatism and protectionism, on the instead of former regional administration. This was not a mere change of label; it one hand, and liberal reformism, on the other hand, is also murky. Nizhnii Nov- is assumed that the whole decision-making process will be altered. The governor gorod Perspective, the blueprint for the new regional government, contains a is expected to remain the leading public figure, while the head of the regional number of strategies that run contrary to economic openness and market reforms, government must become the key professional in charge of strategic planning and like keeping intact oversized personnel in the GAZ factory, banning importation economic reforms. Yet there is still much uncertainty with regard to the relation- of cheap second-hand cars, and countering the financial and economic expansion ship between these two top regional policy makers. of external capital to NNO. Second, to justify its leadership ambitions, NNO needs a long-term, strategic Third, the financial infrastructure of the region has to be drastically vision of its mission as a part of VFD. Again, the first steps have been made upgraded. A good signal was observed in February 2001 when three leading already – in spring 2001 Kirienko’s think tank released the analytical report offer- NNO banks – Sarov Business Bank, Garantia and Bor Commercial Bank – formed ing new perspectives for VFD and its components. Two other competing strate- an alliance to run a number of joint projects like expanding credit cards programs, gies were developed in NNO – one was drafted for governor Skliarov when he and the inclusion of small and medium-size credits in the range of available serv- ran for re-election in July 2001, while another one has appeared in the periphery ices.172 of Sergei Obozov, the first head of the regional government who was appointed Fourth, much will depend on the way the foreign institutions operate in in April 2001. There is a consensus among experts that the regional authorities are NNO. Some positive signs are visible – for example, in February 2001 the NBD strongly challenged by the operations of the major financial and industrial groups Bank became the first financial institution in NNO to have amongst its major (Russian tycoons Oleg Deripaska and Kakha Bendukidze have their essential shareholders the European Bank for Reconstruction and Development (25% of business interests in NNO), as well as global shifts (new meanings of borders and shares plus one vote). Yet other dimensions of international cooperation should territoriality, the rise of new actors such as NGOs and the media, new integrative in no way be neglected. The most recent appointment of Kirienko to lead the State drives that cut across the regions, and so forth).170 What is encouraging is that all Commission on Chemical Disarmament opens new opportunities for VFD and its three documents are based on similar premises that include strengthening the regions to become the members of international security community.173 potential of the region and its major enterprises for survival in an increasingly competitive environment, orientation towards big business, paying greater atten- Should regional and municipal authorities – along with their partners from tion to comprehensive societal and humanitarian projects aimed at modernizing VFD and abroad – fail to come to grips with those challenges, the second scenario human resources and social capital management,171 systemic forecasting of long- might come into effect. Economically speaking, NNO ranks only seventh among term (10-15 years ahead) economic trends, etc. The problem is, however, to make fifteen regions of VDF, and the most optimistic forecasts predict that it will be no all these ideas feasible for the sake of the region as soon as possible. higher than fifth by 2005.174 The probability of the second option will increase in case of malfunctions of political institutions such as ongoing institutional rivalries What is discouraging is that there is still no conceptual clarity with regard to between different actors (one of the most recent cases of 2001 is the tug-of-war the most controversial issues the region has to face. One of these is the declared between the CNN administration and major energy supplier „Nizhnoven- policy of expanding regional economic actors. It is presumed that the creation of ergo“175), lack of cohesion between institutions of different level (for instance, in large industrial holdings in car and ship building, oil processing, chemical pro- May 2001 the issue of secession of one of city districts – Avtozavod – was duction, and the nuclear industry would strengthen competitive advantages of raised176), and corruption. Confrontation between major domestic companies on NNO enterprises, facilitate the attraction of investments, and subsequently help to improve social atmosphere in the region. Yet it is unclear whether the mergers 172 http://www.nizhny.ru, February 24, 2001 173 http://volga.strana.ru/print/989476226.html 170 Apletin, Pavel, Eto ne igrushki (These are not Just Games). Birzha, N 8, March 1, 2001, p. 5. 174 http://volga.strana.ru/print/987139907.html 171 Tsvetkov, Vladimir. V rusle novykh ideologem (In the Framework of New Ideologies). Kurs, 175 http://www.nizhny.ru, April 9, 2001 N 9 (424), 2001, p. 4. 176 http://www.hotcom.ru/main/?id=9424 70 Andrei S. Makarychev

the NNO market (the most notorious examples are the conflicts between Sever- stal’ and Sibal177, and between RAO EES and Russian Aluminum178) might worsen the business climate. Reorientation of major international institutions from NNO to other regions of VFD might also have negative implications (EBRD, for example, is considering allocation of substantial credits to AvtoVAZ plant in Samara oblast, which is one of the strongest competitors of GAZ179). As regards the third scenario, its probability would be basically predeter- mined by the policies of the federal center. However, the comeback of full-fledged centralization seems unlikely nowadays because it would undoubtedly make manifest the strategic failure of the whole concept of Putin’s territorial reform.

177 http://www.nizhny.ru, April 4, 2001. 178 http://www.strana.ru/print/989333679.html 179 Dorin, Viacheslav. Dolgovaya petlia (Debt Pitfall). Izvestiia – Nizhnii Novgorod, April 27, 2001, p. 8.

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